Written by Chad Kissinger, Feb 26 2002. Used by permission.

Common Sense

"The accomplice to the crime of corruption is frequently our own indifference." ... Bess Myerson

"The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced. The manners of capitalism improve. The morals may not." ... John Kenneth Galbraith

"Like many businessmen of genius he learned that free competition was wasteful, monopoly efficient. And so he simply set about achieving that efficient monopoly." ... Mario Puzo, The Godfather (Referring to Don Vito Corleone.

I'm writing to you about an outrage that is your fault. If you ever use a telephone, or ever connect to the Internet, this outrage is costing you money right now, will soon cost you even more money, and, worse, threatens to steal the wealth of our country's bright future. Why is it your fault? Because common sense says it is wrong and because you aren't doing anything about it.

If you are like me, you aren't soon going to leap up from behind your computer and begin working on the 4,000 hours of service the President has asked all of us to perform. Well, if you'll simply spend fifteen minutes reading the rest of this long e-mail, at the end, I'll show you a way that you can have an enormous positive impact on our country's future by spending thirty minutes talking to your elected officials and giving them a piece of your mind. You can serve your country without ever leaving your seat. I've even included some of their phone numbers at the bottom to make it easy for you. I chose to write this long explanation rather than a short one because there are plenty of sound bite explanations from the big companies and from the elected officials whose cooperation they have bought with huge campaign contributions. If you get tired, but are moved to agree with me, please skip to the bottom and start calling. Here's my argument.

What happened to common sense? Lately, we seem to have totally ignored some basic rules of economic prosperity. Here's a few examples.

Common sense: Don't invest heavily in companies that aren't earning a profit and have no great prospect for doing so in the future.

Common sense: Make sure that independent auditors are independent.

Common sense: Companies that give tens of millions of dollars in campaign contributions to elected officials expect something for their money. Typically, it isn't something that is a good idea for the rest of us.

We all know that ignoring the above rules can have spectacular consequences. So let me remind you of some common sense that our country is ignoring right now.

Common sense: It's generally a bad idea to let private concerns develop monopolies of critical resources. It's always a bad idea to let them extend those monopolies to new areas and to let them charge whatever they want for their monopolized products and services.

The railroad barons, oil monopolists, savings and loans, Enrons, Global Crossings and Arthur Andersons of the world have taught us that greed lies in the heart of man. Today's monopolists are no different. Monopolists charge too much for their services. Monopolists offer lower quality of service than is available in competitive markets. Monopolists tend to not introduce new technologies that make the technologies they have already paid for obsolete. Monopolists tend to use their monopolies to form new monopolies in other markets.

Common sense: It's a good idea to either break up monopolies or to highly regulate them to protect the public from their excesses.

We are very close to having an unregulated monopoly for telephone delivered Internet access and that has serious implications for our future.

The very man who chairs the committee that has lambasted the Enron executives, Rep. Billy Tauzin R-La, has reportedly accepted $10 million in campaign contributions from the Baby Bells to support the monopolization of the telephone delivery of Internet access.

The result is the Tauzin-Dingell bill, also known as the Broadband Deployment Act. This Act is now due to be voted on in the House of Representatives on Thursday, February 28th, 2002. In essence, Congressman Tauzin and the Baby Bells say this in support of their bill

"It costs too much money to let competitors on our network. The cable companies have a monopoly on their networks, so they don't have the same expenses. That's unfair, so you should give us a monopoly on DSL and any new advanced delivery technology too. If you do, we promise we'll deploy to areas that aren't currently served by broadband. There's no need to regulate our prices, because competition from cable modems and wireless providers will keep us honest."

Simultaneously, Chairman Michael Powell of the FCC has proposed new rules that allow the Baby Bells to bar independent ISPs from their DSL networks or any new telephone broadband networks they might develop. Chairman Powell's reasons are, frankly, pretty much polysyllabic gobbledygook. So it's hard for me to translate them into simple English... but I'll try.

"The current regulatory environment provides uncertainty for telephone companies. They are just going through too much trouble trying to let their competitors on their networks. It's also unfair that cable companies have no such regulation. This uncertainty is hampering the deployment of broadband. So, we should let them have a monopoly on DSL and advanced telephone networks. We don't need to worry about price regulating this new monopoly because there are cable modems and wireless providers out there that will do that for us."

Common Sense: That's stupid. Unregulated monopolies for critical resources, like telephone service or the Internet, are plainly stupid. Greed lies in the heart of man. The best way to protect against the excesses of greed in any market is to gather up a bunch of greedy people and let them duke it out. That's called competition.

I'll pass on the urge to explain why breaking up the cable monopolies makes more sense (see the above diatribe on greed) and save your precious attention for why this is such a bad idea. Hopefully, by the end of this, you'll understand the depth of the fraud that Rep. Tauzin, Chairman Powell and the Baby Bells are trying to sell.

1. The Baby Bells already control over 90% of the DSL market. On numerous occasions, they have been found guilty by administrative judges of using monopolistic like tactics to treat their competitors unfairly. How is giving them the 10% of the market they don't already have going to move them into providing service in areas where they aren't currently interested in deploying? On numerous occasions, they've promised to deploy into these very same areas and have broken that promise. Here's one example:

"SBC Communications Inc. promised Monday to spend $6 billion over the next three years to deliver high-speed Internet service to at least 80 percent of its customers in 13 states." 10/19/99 Austin American Statesman

"SBC Communications Inc. said Monday that it will cut several thousand jobs across its 13-state territory during the next several weeks while dramatically slowing spending for construction of digital phone line service for high-speed Internet access." 10/23/01 AAS

They also promised to do the same thing again and promised to expand into 30 new major cities outside of their monopoly service area as a part of their merger with Ameritech. They've done neither.

Why is Congressman Tauzin giving them a monopoly to incite them to deploy instead of holding them to promises they've already made? There are 10 million reasons why.

2. The heavily unregulated DSL market has been virtually monopolized and the cost of DSL has gone up in the U.S. from $39 to $49. It costs $29 (US) in Canada for the same service. Right now, Canadians are twice as likely and South Koreans are four times as likely to have broadband access than Americans. That's pitiful.

It's interesting to note that, at the same time, the Baby Bells haven't had the same success in the heavily regulated dialup market (dialup access uses heavily regulated lines). They control less than 10% of this market and the price has steadily dropped over time. Giving them exclusive control of DSL and new technologies will only make this trend worse.

3. How is competition from cable modems and wireless providers going to regulate the Baby Bells prices? The basic premise of the legislation is that there are areas where there are no telephone, cable or wireless providers of broadband access. In these areas, won't the telephone company have a total monopoly on access? If the cable providers are on their way out there, why are we giving away a monopoly to the Bells to get the job done? What will keep them from charging outrageous rates in these areas? Monopolies charge too much for their services.

4. Cable modems and wireless connections don't exist everywhere. There are some places that only can get access via telephone lines. That is especially true in the rural areas that the Tauzin-Dingell bill purports to help. In those areas, won't the telephone company have a total monopoly on access?

5. Cable modems and wireless connections aren't suitable replacements for telephone delivered access for many users. If you doubt this, go find a computer network guru at any company. Ask them how they would feel about replacing their current Internet connection with a cable modem or wireless connection. Cable modems, and current wireless technology, have different qualities than telephone delivered access. For a huge segment of our business economy, the only real access solution is to use some type of a telephone line. This law would give the Bells a monopoly on those types of lines.

6. Technology doesn't stand still. I bet many of you have an old 14,400 modem in your closet somewhere that proves this point. That was current technology just five years ago. What happens when a new telephone delivered technology comes out that is superior to DSL, T1s, T3s and other current technologies? This law would guarantee the Baby Bells a monopoly in that service, if they decide to deliver it all.

7. The Baby Bells have consistently avoided the adoption of new technology in order to protect their investment in their old technology. In the early days of the Internet, they loudly complained that dialup modems were putting a dangerous load on their network. More recently, they complained that ISPs who were trying to deliver DSL where literally damaging their network and affecting other services for other customers. Only after they saw that we were making money doing so did they began to mass market dialup and DSL services themselves. Telephone oblivion has, apparently, been narrowly avoided. Monopolies tend to do everything possible to extend the life of their current investment. If a new technology comes along, they try to delay its deployment to stretch out their income stream generated by their currently deployed technology for as long as possible.

8. If the Baby Bells are allowed to form a monopoly here, what will keep them from leveraging that monopoly into other related markets, like web hosting, video conferencing, voice over IP and video on demand? If they control the cost to their competitors for Internet access, they can monopolize these any many other markets too.

9. Letting one company control large parts of the Internet is dangerous. This is another example of ignored common sense: Don't put all of your eggs in one basket. For instance, Qwest, now one of the Incumbents, last year failed to provide e-mail for nearly a week to all of their DSL users. What is the effect on the economy when 90% of the businesses in a community cannot get to their e-mail for a week? Another example: Just this week, SBC-Ameritech announced that tens of thousands of their customer's had their personal information accidentally published on the World Wide Web. This included names, addresses, usernames and passwords. Anyone who viewed the site could download and read the mail of any of those businesses by logging in with those usernames and passwords. How much damage can be caused by a criminal with access to the e-mail of the entire business community? Mistakes happen. Hackers exist. Networks are compromised. We should limit the magnitude of each mistake by insuring that there is diversity in the network. In other words, let's spread our eggs around into many baskets.

10. Passing either of these measures would undermine the power of the rule of law in the United States. The rule of law is important for business because it provides certainty. It sets rules that create a stable, predictable environment in which business can prosper. The counter-example, of course, is Russia. In Russia, you never know if your contract with someone else will be enforced by the state. There is no rule of law, so it is dangerous to invest there, so people don't.

In 1996, Congress changed the rule of law with the Telecommunications Deregulation Act. Basically, they said that they would regulate the Baby Bells and create an environment suitable to create and maintain effective competition in local telephone service. The new rule of law said "If you invest your money in this industry, we'll make sure that the existing monopoly doesn't treat you unfairly." Then, of course, the government took the campaign contributions of the Baby Bells and broke their promise. Although the Bells have repeatedly been found guilty of breaking the rules, they have only been fined the equivalent of a few days of profits for doing so. Now they want to eliminate the rules all together.

The result is that the competitive telephone industry is in shambles. Most telecom providers have already gone bankrupt, many will follow. The Wall Street Journal reported that it is estimated that 40% of the wealth lost last year in the markets was due to the failure of telecom companies and the concomitant affect on their vendors. If we finalize this failure of the rule of law, instead of fixing it, what will be the result the next time Congress wants to induce investment in a particular area?

The Baby Bells already have a de facto monopoly on residential telephone service and DSL in the U.S. Now, they want to formalize that monopoly in law and extend it to any new telephone delivered technology that may come in the future.

You only need to look at my home state, Texas, to see what they will do if we give them their way. In 1999, the Texas Legislature, under competing pressure from AT&T and SBC, our local Baby Bell monopoly, passed a law that deregulated the monopoly. Here's what our local paper had to say about it.

"Texans would pay less for long-distance calls within the state and basic residential rates would be locked in until 2005 under a bill in the House that won approval late Monday night" 5/25/99 Austin American Statesman

What they didn't mention is that the same bill completely deregulated nearly all of SBC's other services and let them charge whatever they want. What do you think happened? I'll let the paper tell you what happened... remember, the law was going to lower long distance and freeze basic residential rates.

"Texas Citizen Action, a consumer group, and the Gray Panthers, a group representing senior citizens, released a study Wednesday that says a new telephone law will cheat consumers of at least $1.1 billion between now and 2005" 9/23/99 AAS

(I'd like to point out that that's enough money to replace all of the soft money the Republican and Democratic national parties raised in the same period.)

"SBC Communications Inc. is raising pay phone rates to 50 cents for a local call throughout its 13-state service area, including Texas." 7/7/01 AAS

"Southwestern Bell telephone customers will get hit with larger bills after rate increases on more than 30 optional services, such as Caller ID and three-way calling, and packages, go into effect Monday." 7/28/01 AAS

"AT&T Corp. long-distance customers will have to cough up an extra $1.95 a month for a new "in-state connection" charge the carrier is implementing Sept. 15 to make up for high statewide access charges, the company said" 9/7/01 AAS

(The law mentioned above specifically lowered the access charges. It didn't raise them.)

"Less than a month after it raised rates for long-distance customers, AT&T said Wednesday it was hiking rates for its local customers in Texas." 10/4/01 AAS

"Southwestern Bell is raising prices for optional services just six months after its last price increase." AAS 1/16/2002

We now pay $9.50 per month for Caller ID in Texas. That service costs around 60 cents per month to provide. There are bargain basement ISPs that will give you unlimited access to the entire Internet for the same amount the phone monopoly charges to send you a 30 character string with the name and phone number of your caller. Our Public Utilities Commission used to protect us from this type of abuse. But, the phone monopolies paid our legislators to eviscerate the PUCs power and we're left with an unregulated monopoly. Adding just that one service to a basic residential phone line almost doubles the cost of the phone line. Although the Texas legislature claims they "froze" basic residential service rates until 2005, the real truth is that if you want anything other than a no frills telephone line, your bill has exploded and there is nothing preventing it from going through the roof.

We all know what it's like to have the Bells as the monopoly providers of our service. What we've never before experienced is having the Bells as unregulated monopolies. In America, we have a good example of how to successfully create competition in a monopolized telephone market. It's called Structural Separation. That's what we did when we broke up Ma Bell into AT&T and the Baby Bells. I think that most intelligent people would agree that the long distance market is much better today than when AT&T was the only game in town. AT&T until very recently still charged 27 cents per minute for a long distance call. What would structural separation, and the real competition it creates, do for local service or for the Internet? Well, it would probably make today's service and prices look just like AT&T's 27 cent per minute long distance call.

Please do your part to prevent this outrage from becoming the law. Contact your elected officials and tell them that you are tired of big companies buying bad legislation with millions of dollars of campaign contributions. They should oppose the Tauzin-Dingell bill and should investigate the FCC's newly proposed rules that would allow the Baby Bells to exclude independent ISPs from their networks. Competition is what makes America great, not monopolization.

[List of Texas Representatives removed.]