Teletruth News Analysis:
PART ONE: November 15th, 2007
Part One: Harm to Wireline
Competition: Harm to Customers and Investors.
NOTE: This is the first in a series examining how the
FCC's brand of deregulation harmed American's economy and
- 56% Drop in Competitive Local Exchange Carrier Lines:
Loss of 10 Million Competitive Lines Since 2004 -- and
- Lack of Competitive Choices Led to Massive Local and
Long Distance Price Increases; Billions in Investor
- FCC's Deregulation Picked Winners and Losers -- The
Duopoly -- Creating Economic Harms to
Wireline-Competition, Favoring Cable Companies.
Wholesale (*UNE-p and Resale) Lines, 2004-2007
(From Annual and Quarterly Reports 2007 3rd Quarter)
DROP 10,330,000 lines -56%
Only 7.1% competitive lines.
When the Telecommunications Act of 1996 was passed, the
goal was to open the America's wireline utility, the PSTN
(Public Switched Telephone Network) to competition. In
exchange, the local phone monopolies would be allowed to
offer long distance service. They had been restricted
because the court realized that they would gain undue market
power owning local and long distance. (In fact, in 1984,
AT&T was broken up because of this issue.)
New data now shows that the FCC illegally failed to
protect the rights of competitors on the PSTN networks,
directly in contradiction to the Telecommunications Act.
Instead, the FCC gave regulatory preferences and new
financial economic regulations to move towards a duopoly,
where the cable and telco wire-owners control telecom,
broadband, cable and Internet service.
New data, highlighted in Exhibit 1, shows that there has
been a massive 56% drop in competition on the wireline
networks since 2004 primarily caused by the FCC's policies
to remove wholesale rates (known as 'UNE-P' and 'Resale'.)
This was the primary reason AT&T and MCI were put out of
the local phone business and put up for sale.
Today, there are about 8.3 million total competitive
lines as compared to 18.6 million in 2004 for the three
largest incumbents, AT&T, Verizon and Qwest. The phone
companies have 118 million lines, thus, only 7.1% of
competition for both business and residential services,
which means that they are still monopolies of the wireline
Meanwhile, the cable association claims that only 12
million customers have phone service via their cable
provider ---a bit over 10% of homes. Thus, competition is
essentially flat as one favored group takes market share
from the group being 'deregulated' out of business. More to
the point, there is no competition.
Less Choice and Strengthening the Duopoly.
The Telecom Act was not set up to let the owners of the
wires take control of local, long distance, cable,
connectivity to the Internet and broadband (DSL). This is
clearly excessive market power. It is also rife with
anti-trust violations because these companies used their
market position to get the FCC to favor the wire owners over
the independent companies. These arguments were
strengthened, not by independent research conducted by the
regulatory agencies, but relied on corporate-funded-think
tanks, and the company's astroturf and lobbying groups.
Consequences and Ironies
Regulatory Favoritism: When comparing the drop in
competitive lines with the increases in cable-telephony, we
are faced with a fact that the FCC manipulated the entire
competitive process to help the owners of the wires, not the
One competitor, IDT, wrote: "The declines, particularly
in our bundled offering, are reflective of our decision to
stop marketing these services following the FCC's
termination of the UNE-P pricing regime in calendar 2005,
which has resulted in an increased cost structure and
inferior economics for this business."
o Less Choices: There are greatly reduced
choices, as the two largest competitors, AT&T, and
MCI are no longer selling services, and hundreds of
competitors were put out of business.
o Merger Ironies: During the previous mergers of
SBC-Ameritech and Verizon-GTE, each company claimed it
would be entering each others' markets using the
wholesale regime and these mergers were essential to give
these companies the size to compete. By 2002, SBC was to
have 30 cities outside their own regions and Verizon 21
cities. This was all smoke and mirrors as neither
AT&T or Verizon compete outside their own regions
with wireline services.
Moreover, this competition was to be created by using
the same wholesale rate regime that the Bell companies
(now AT&T and Verizon) sued over so that other
companies couldn't use their networks -- directly after
the ink had dried on the previous merger conditions.
o Merger Ironies: AT&T and MCI were put up for
sale because the FCC no longer required the phone
companies to open their wireline networks to competitors.
SBC bought AT&T and Verizon bought MCI and no one
of these companies compete for wireline services.
o Investor harms: The market was never a fair
'competitive' market but was manipulated by the FCC's
policies to favor the duopoly. Thus, it was not through
competition, but through bad regulation, that many of
these competitors were put out of business. Every
investor who put money into a competitive company that
was supposed to be able to use these networks at fair and
reasonable prices essentially had their investment
strip-mined of value by the FCC.
o Final Insult: Long Distance Takeover: The FCC should
consider terminating the right of AT&T (SBC) and
Verizon to offer long distance services in their own
region. The Telecom Act of 1996 allowed the companies to
offer long distance only after it was proved that their
networks were open to competition. They were not allowed
previously because they would have undue market power.
As is clear, the opening of the networks generated
competition. The FCC allowed the Bell companies into Long
distance, only to have the FCC close the competitors'
rights to use the networks. However, the FCC did not
close the right of the companies to offer long distance
and so these companies have been able to essentially take
over both local and long distance.
o Price increases are the consequences of these
actions. As documented since there is no competition,
AT&T and MCI have been able to raise rates to
"harvest" customers - I.e., continuously raise rates to
force customers to leave for more expensive packages. The
price for AT&T basic rate long distance service went
to $.42 a minute, not counting all of the new bogus
Local Service has also had major increases throughout
the US. Since 1980, local service in New York City has
increased 472% because there are no competitive
alternatives for "local" service.
Mini-Report: Some basics about price increases of
Verizon and AT&T.
o Competitors who are still left and have
"contractual' arrangements with the companies are still
being put at a disadvantage because their wholesale rates
continue to increase or can be more expensive than retail
Next in this Series:
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