Killing the copper and income inequality

copper-electrical-wireA hundred years ago, America decided that everyone was entitled to an affordable telephone line. Now some Americans (thanks to muni bright spots and other efforts) are making the upgrade to a fiber-to-the-home connection – the new global standard, the replacement for a standard general-purpose telephone line. But the policies that supported “universal” (all Americans) access to basic, affordable communications are being steadily dismantled and are not being upgraded. Why? Probably because all the people involved in making these decisions are affluent.

A bunch of policies supported the idea of universally-available, standardized phone connections: The country subsidized phone lines to rural areas and made it possible for poorer Americans to sign up. We’re still doing this through the Universal Service Fund, which pays out $8 billion or so every year. We did it through interconnection obligations, which required telephone companies to let other telephone networks connect to their lines on reasonable terms. We did it with the idea of common carriage, a very successful regime that allowed us to trust private businesses running communications networks not to discriminate or censor in support of their own business plans.

In exchange for all of this, we got a level playing field for all Americans and a reduction of transaction costs for every single business in the country, as well as a world-class communications network. Networks could connect – interconnectivity doesn’t happen by itself where the players have different levels of power. The carriers got protection from liability for the communications they carried and protection against pressure groups. Information could flow without being held up by gatekeepers. We got a national market that anyone could reach easily.

About 10 days ago, Bob Quinn of AT&T went to FCC Commissioner Pai’s staff and told them it was time to turn off many of these obligations for copper phone networks, as the company gets ready to shed all of its wireline regulatory burden. He says it’s time to transition to an “IP-based Network/Ecosystem.” He’s right that it’s time to transition to fiber connectivity for all Americans, but why does that mean we should abandon all of the social policies that built the country’s economic growth as a whole? Since when did it stop being important to ensure that all Americans have equivalent communications capacity?

AT&T isn’t even trying to compete head-to-head with cable for wired connections these days, and last quarter (2Q2012) it shed 6.1% of its DSL customers (a record!) as they fled to cable. It sees the opportunity to use “we’re moving to IP!” as the trigger for wholesale deregulation. Verizon has made this even clearer. Here’s Chairman and CEO Lowell McAdam talking to a Wall Street analyst in mid-June 2012:

[T]he vision I have is we are going into the copper plant areas and every place we have FiOS, we are going to kill the copper [the regulated service]. We are going to just take it out of service and we are going to move those services onto FiOS….And then in other areas that are more rural and more sparsely populated, we ave got LTE built that will handle all of those services and so we are going to cut the copper off there… and do it over wireless.

The NYAG understands what effect this will have, and has said: “Verizon’s stated intention to force urban landline customers onto [unregulated] FiOS and rural customers onto [unregulated] wireless plans will put basic voice service beyond the economic reach of a significant portion of the company’s current customers who do not wish to or cannot pay for these services at current prices that far exceed current landline voice service.”

So – we’re moving away from the basic social contract of voice service at a reasonable cost and moving to an almost-completely unregulated world of expensive, second-class broadband that is serving only about 70% of Americans. Most of the rest of America can’t afford high-speed Internet access at the current unregulated prices – and all of those other obligations, like common carriage and required interconnection, are headed out the window.

The current policy answer to this grinding inequality is to propose that the country subsidize some minimal high-speed Internet access service – maybe 4 Mbps download, tiny upload – and to embrace the idea of usage-based billing for this low-capacity service so that the carriers can avoid any cannibalization of their “premier” services.

Why is all of this happening with so little policy response?

In: Affluence and Influence: Economic Inequality and Political Power in America (2012), author Martin Gilens makes a data-driven case for the following proposition: The responsiveness of government policies in America is strongly tilted towards the most affluent Americans. Indeed, “under most circumstances, the preferences of the vast majority of Americans [including the middle class as well as poorer Americans] appear to have essentially no impact on which policies the government does or doesn’t adopt.”

Who’s affluent? The top ten percent – including all members of Congress and most policymakers. Anyone earning more than $135,000/year. Gilens lays out a now-familiar story:

Income inequality in the US held more or less steady from the mid-1960s to the early 1980s and then began to climb. With brief dips in the late 1980s and early 2000s, income inequality has contined to rise. In 1981 the top 10 percent of American families received about 35 percent of all income. By 2006 the top decile was receiving almost half of all income. Incomes grew even more dramatically for the top 1 percent of all families. Over this same quarter-century, the income of the top 1 percent of families grew from about 10 percent of all income to about 23 percent.

The bottom 90 percent of Americans would probably like to see equivalent communications capacity for everyone – a utility, just like clean water, electricity, and a phone line. In the past, this kind of level playing field would have been uncontroversial. Now, though, it’s unthinkable. To suggest that everyone should have a high-capacity, low-latency connection for access to education, health, and economic opportunity – that’s crazy talk.

It sounds crazy because the people making the policy can afford to pay a lot for whatever connectivity is available where they are, and the policies they make are likely to be completely unresponsive to the preferences of the “bottom” 90 percent.

Let’s give Gilens the last word:

Rich Americans tend to support the economic policies from which they have so greatly benefited. This raises the disturbing prospect of a vicious cycle in which growing economic and political inequality are mutually reinforcing.

That’s the “ecosystem” we’re in at the moment.