IP: Salon: Deregulation's big lie

[Dave Farber <dave () farber net>]

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From: "Robert J. Berger" <rberger () ultradevices com>
Date: Wed, 17 Jul 2002 19:18:32 -0700
To: Dave Farber IP <dave () farber net>, Dewayne Hendricks
<dewayne () warpspeed com>
Subject: Salon: Deregulation's big lie

http://www.salon.com/tech/feature/2002/07/16/telecom_crisis/index.html

Deregulation's big lie

FCC chairman Michael Powell says the WorldCom debacle may result in more
telecom mergers. So who ends up losing? We all do, explains one industry
expert.

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By Katharine Mieszkowski

printe-mail

July 16, 2002  |  If the latest multibillion-dollar accounting scandal shuts
down WorldCom, a worst-case scenario could see some 20 million customers
losing their dial tone. To prevent this data-death fallout, Federal
Communications Commission chairman Michael Powell suggested, in an interview
in Monday's Wall Street Journal, that a Baby Bell might be allowed to buy
the nation's second-largest long-distance carrier to keep the phone and data
lines open.

Wait. A large regional phone carrier eating up a major long-distance
provider? "Hello, this is Ma Bell calling!"

This isn't how things were supposed to happen. The breakup of the AT&T
monopoly in 1984 was designed to end monopoly control of phone services. The
further deregulation of the telecom industry after the Telecom Reform Act of
1996 also promised that increased competition would bring lower prices and
better service to consumers.

But Robert McChesney, a professor at the Institute of Communications
Research at the University of Illinois at Urbana-Champaign, argues that it's
precisely the deregulation of the telecommunications industry that has led
to the current industry crisis. And according to McChesney, Powell is little
more than a tool of free-market absolutists, accelerating the
reconcentration of control in the industry -- only this time, without any
government oversight to make sure that customers don't get taken to the
cleaners.

The author of "Telecommunications, Mass Media, and Democracy: The Battle for
the Control of U.S. Broadcasting, 1928-1935" and "Rich Media, Poor
Democracy: Communication Politics in Dubious Times," McChesney explained his
views in a phone interview with Salon.

FCC chairman Michael Powell said that the current "utter crisis" in the
telecom business could be a reason to allow a Baby Bell to take over
WorldCom. What's your reaction to this?

It shows what a big lie deregulation was based on.

The big lie of deregulation was that by letting these companies do whatever
they wanted with much less oversight, competition would force them to better
serve the public with lower prices and better service through the force of
market competition.

But what "deregulation" really means isn't [a kind of] deregulation where
there is no regulation [at all]. It just means regulation on behalf of
powerful interests with no one representing the public. So these companies
totally fleeced the public and left everyone -- their shareholders, workers
and taxpayers -- holding the bag.

And we got worse service; prices have come down marginally in some markets,
but I think that most economists think they would have come down much more
dramatically had there been genuine competition. So, we have the worst of
both worlds. We have concentration without any public oversight or much less
public oversight.

And that's the deplorable situation we're in today, where we have a company
like WorldCom, which controls an enormous percentage of Internet traffic,
teetering on the edge of going out of business. It would have been
unthinkable for this to take place six years ago. It used to be if you're
going to have highly concentrated markets at least the government would be
there looking out for us. Now, that's gone.

And having Michael Powell in charge of representing the interests of the
public, the taxpayers and the citizenry vis-à-vis large corporations is
similar to having Jeb Bush's secretary of state in Florida, Katherine
Harris, be in charge of Al Gore's recount team. He's even admitted that he
has no notion of what "public interest" means.

Why's that?

Michael Powell makes his father look like Thucydides.

He is a free-market-spouting politician who thinks that markets can do no
wrong. Even in situations like communications markets, which are highly
concentrated and are regulated as public services everywhere in the
civilized world. And he came into office saying that he just didn't
understand the whole notion of public interest regulation or public service.

He comes in with this sort of theological zeal for free markets, greased no
doubt by a decade of being wined and dined by the Cato Institute and the
Heritage Foundation, and having no doubt a golden carpet laid in front of
his feet by people trying to kiss up to his father. He's unprepared to
really deal with the magnitude of a crisis like this, which requires a real
understanding of the role of regulation to protect the public interest of a
vital national resource like communication.

Do you think that if a Baby Bell is allowed to buy WorldCom it will be a
step back toward the kind of monopoly that the breakup of Ma Bell was
supposed to end?

Look at what's happened since 1996.

In 1996 when the Telecom Act was passed, it explicitly deregulated ownership
in the telecommunications field.

At that time, we had maybe 12 major companies -- the seven Baby Bells, AT&T,
Sprint, GTE, MCI, maybe WorldCom was coming up then.

And we've had a lot of small companies try to start up in the meantime. But
basically that group of 12 companies has now shrunk in half due to mergers.

The seven Baby Bells have swallowed up GTE and merged down to four
companies. We've had AT&T go on to be the biggest cable company in the
country, although that's now in the process of changing. But what we've seen
is tremendous consolidation, not expansion.

And this process is continuing. The irony here is that we're returning to a
totally concentrated situation with the difference being that now we don't
have the formal legal protections written in the law so that there can be
oversight to make sure that we don't get fleeced.

The key part of the deal for the telecommunications industry in the
regulatory system that existed in this country from the 1930s until 1996 was
that it let these monopolies and semi-monopolies rake in profits.

They let them make a killing and not have any competition, and the public
paid for that with all the things that happen in monopolies. But also the
trade-off was that it forced these companies to provide universal service.

That was the deal. That was what the public really got out of it, because
left to the market, poor people never would have gotten phones, rural areas
never would have gotten phones.

But now the ability to get concessions in exchange for granting these
monopoly and semi-monopoly markets is gone.

This is not Michael Powell's creation. But he does have wiggle room within
the law that he once again is just incapable of grasping or incapable of
wanting to grasp. So closely wed is he to the "anything that makes money for
rich contributors of the Republican Party is good" theology that he just
can't deal with a situation like this. He really is way over his head. He is
just a bagman for moneyed interests.

So, his solution is just to let these guys get bigger. It's understandable
in terms of this crisis, someone's got to take over WorldCom, but that's
sort of like stopping the bleeding, maybe.

There's a much broader problem that this will lead to that will be much
worse, if we just let WorldCom get swallowed up by one of the few remaining
Baby Bells.

Do you see the current telecom crisis as a result of the Telecom Reform Act?

I would say that the whole deregulatory environment is absolutely the center
of this. And the deregulatory environment not just for telecom, but more
broadly with accounting and corporate governance in general that affects all
sectors of the economy. But the deregulation in telecommunications, which at
one time was a heavily regulated industry -- maybe the most heavily
regulated in the country -- combined with the loosening up of accounting and
banking and financial regulations, the relaxation or even elimination of
those, is clearly what created this crisis.

There is no reason that you would have these sorts of crises otherwise. It's
not like this is a sector, like the horse and buggy industry in 1920, that's
going out of business.

This is a sector that's booming in many respects. Now, to some extent the
problem also is that you just had a traditional capitalist bubble where
investment poured in way in excess of what was needed, and that's what
business cycles take care of. And that was a factor here too, how much I
don't know. But the corruption involved in WorldCom, and all these other
telecom scandals, couldn't have existed under old standards of regulation,
where you have WorldCom and other telecom companies sort of trading
customers to boost the impression of how many accounts they actually hold.

Do you think that calling this an "utter crisis" could be used as an excuse
for allowing business interests to do what they would want to do anyway?

Not necessarily. I think there is a genuine crisis, and this is the only
solution they're capable of coming up with because they're incapable of
thinking in any other way.

What would be another possible solution?

The ideal solution would be to have the relevant committee of Congress
immediately convene hearings to take up this whole question of
telecommunications and this crisis here, get to the bottom of it and then
determine how this industry should be structured, not to do it piecemeal.

It's absolutely too important to let some huge new zillion-dollar
corporation be formed, and then say: "Well, we'll take this up in a few
years." By then that lobby will be so strong, they'll be flossing their
teeth with politicians' underpants. You've got to do it now, ahead of time.

And that would be the democratic and the rational solution. Address the
crisis in the legislative arena, have hearings. And you would think that
logically you're going to come up with probably some fairly strict standards
for accountability, and for consumer protection for these companies and for
public service, for things that they're going to be required to do. Those
things won't happen if you just sort of let these companies take over a
third of the country, and then say: "We'll try to regulate you, after you've
gotten back on your feet, and you own half the politicians, and hopefully
half the country's forgotten about this crisis by then."

How likely do you think it is that Congress will convene these sorts of
hearings about telecom in general?

I think all these politicians in Washington, who have basically been on the
take for the last decade, understand that they're out there on some thin ice
in the fog with the electorate on this one. And if the economy heads south,
and more of these crises ensue, they're going to have a tough time in their
constituents. So, I think there's an understanding that they might have to
do something.

So, it's an interesting period. It's a little bit up for grabs. It's unclear
where we're going to go; a lot will be determined by how much the scandals
of this administration and this government get publicized, and how many more
scandals emerge. At some point, even with our society's profound ability to
let moneyed interests dominate everything, if the scandals get too intense,
I think it will force action.

And telecommunications, it's not just like everyone in business is against
the public here. It's not to be understood that way politically. There are
also strong elements in the business community that would not be happy with
WorldCom and a major Baby Bell linking up, because it would raise their
prices, and business is one of the main users of telecommunications. So, we
shouldn't view it too much in a populist manner, the entire class of
capitalists vs. the masses.

One of the things Powell insinuated is that more telecom companies might be
coming out with these accounting irregularities.

If they don't, the CEOs there have been asleep at the switch. This was the
time to make your killing. Come on, I mean, unless you've got Mister Rogers
as the CEO of course you're going to be monkeying around like WorldCom. Look
at the money these guys made. If they played by the rules, these guys would
be paupers, Ken Lay wouldn't even talk to them as he passed them on the way
to the golf course.

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About the writer
Katharine Mieszkowski is a senior writer for Salon Technology.
-- 
Robert J. Berger - Internet Bandwidth Development, LLC.
15550 Wildcat Ridge Saratoga, CA 95070
408-882-4755 Fax: 408-490-2868 rberger () ibd com http://www.ibd.com


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