NOTE: This item, by Gordon Cook of the CookReport, is the lead item in this discussion of Bruce Kushnick’s book, $200 Billion Broadband Scandal.
You can read his entire post here.
January 17, 2006 Ewing, NJ —
Capitalism in the United States in the 21st century has not moved forward with the rest of the world. While many of our giant corporations are shrinking in size, in 2005 in American telecom there were two major exceptions.
The two largest local phone companies swallowed the two largest American carriers. SBC merged with ATT and became the “new” ATT and Verizon took over MCI. Some observers speculated that the real reasons for the mergers were the acquisition MCI and ATTs global IP backbone’s free traffic interconnection with the other major global players. In an increasingly all IP world these resources had the potential to enable more cost effective competition in the efforts of what some began to call Bell East and Bell West’s efforts to provide television over their IP networks efforts to compete with cable modem service that will very likely fail.
During 2005 we saw an assault on the FCC that was coordinated with a local assault at the state level PUC. Verizon and SBC, followed by Qwest and BellSouth, set about their agenda of taking back complete control of the newly built Internet protocol infrastructure at everyone else’s expense. They were trying to preserve their way of life and if at the end of the day the shareholder were enriched fine.
But the share holders were not enriched.
Over the past five years SBC/ATT shares have fallen by 50% and those of Verizon by about 40%. In 2005 the year of the great triumph Verizon’s share price fell by 25% from 40 to 30. The price earnings ratio was 10.27 on January 13 and market cap was $89 billion. Over the same five years SBC/ATT lost half its value from $50 to $25 a share with a market cap of $82 billion and price earnings ratio of 21.6. In 2005, the year of its triumph the price was flat line virtually unchanged at $25 a share. Late on January 13, 2006 S&P downgraded Verizon’s debt rating and placed the debt of Bell South and SBC/ATT on credit watch.
If they were serving share holders they would take a long term point of view rather than preserve the old way of doing things. One has to look very hard for any sign that the telco’ s understand the internet except as an alien body to be controlled and channeled to fill their coffers. In January 2006 the mega LECs and their two smaller siblings have gained a stranglehold over the Internet. But the stranglehold begins to look like one built on quicksand.
With the mergers and the successful attack on the FCC and increased rates pushed through at the PUCs during the 1990s, the phone companies have entered a race to deliver television to the American consumer. At the same time they also denied their customers the advantages of the symmetric broadband networks they committed to build in return for higher rates.
They did thism according to a new book,: $200 Billion Broadband Scandal by Bruce Kushnick, by selling new regulatory regimes whereby, in return for blanket rate increases totaling 200 billion dollars, they committed to build out across the country a modern fiber based infrastructure. The infrastructure for the most part was never built, instead through lobbying and legal attacks on any municipality that wanted to build its own network, they acted to preserve their earlier way of life. The COOK Report will begin to outline this story in its March 2006 issue.
