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The Robber Barons of the Information Highway
``` [This is a forthcoming article from The Washington Monthly. It is forwarded to RRE with permission.]
Date: Fri, 26 May 1995 15:53:30 -0400 From: Jwshenk@aol.com
The Robber Barons of the Information Highway Telecommunications companies promise the digital kingdom of heaven. Don't count on it
By Joshua Wolf Shenk
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Six American kids on a basketball court. They run hard, weaving in and out of one another, and slashing to the basket. "Tres bien," one says to another. "Tres bien."
"Some kids are practicing French outside the classroom," intones the voice of James Earl Jones, "thanks to Bell Atlantic's interactive video distance learning." The ad cuts to a classroom, where a teacher calls out from a television screen at the head of the class: "David! Le chapeau si vous plais!" David, fresh from the basketball court, looks up from his desk confused. "Your hat," says the kid behind him loudly, and they laugh. The teacher's stern visage gives way to a smile. "Merci."
In living, breathing reality, this commercial shows the true potential of "the information superhighway." Maybe those four students live in a rural district. Maybe their school can't afford a full-time teacher's salary. In the world to come, the commercial says, deserving kids will have an easier time finding good teachers. Another Bell Atlantic spot shows doctors working from remote locations-"telemedicine." Still another shows a tiny community on isolated Tangier Island, Virginia. A fisherman talks face-to-face with people in Norfolk ("I can let you have 25 bushels of number-one hog crabs.") In Tangier, too, the kids learn from a teacher on a TV screen:
TEACHER: When you understand the culture, you understand the what? James? JAMES: You understand the people. TEACHER: Good. And what does that help us do? Cara. CARA: Understand each other.
Technology that brings people together and brings out their best: that is the future promised by companies like Bell Atlantic, AT&T, and Time Warner. Their promises matter because it is private investors, not the government, who will finance and build the coaxial cable and fiber-optic "roads" that will make up the superhighway network.
But when I looked for signs of dedication to learning and civic improvement at Bell Atlantic's interactive demonstration project in Arlington, I was disappointed. I was shown a computer screen with the image of a small city, with an elegant town hall, a school, and a hospital. But point and click and x not much happens. The real action is in the virtual shopping mall-with dozens of catalogues and video games. "Ultimately," insists spokesperson Joan Rasmussen, "there will be communication from house to house and education and all that."
Yet as Congress works on the first major telecommunications bill since 1934, Ramussen's words ring hollow. Telecom reform does have its pitched turf wars-long distance companies like AT&T and MCI, for example, want to keep the Baby Bells out of the long distance business for as long as possible. But the real story is where industry is firmly united: against the two basic concepts that would ensure that the public, not a few huge info-conglomerates, can decide what will be on the information superhighway. The first, known as "common carriage," would require companies to serve everyone for the same price, preventing them from forcing folks they don't like off the roads by spiking prices. The second is known as "open architecture," and it would prevent the private builders from running all the roads through a central hub that they control.
Industry has a very different vision in mind. As Bell Atlantic's demonstration center indicates, the money isn't in schools or health care, but home shopping, movies, and video games. Interactive TV, Bell Atlantic chairman Raymond Smith has said, "will turn us from a nation of couch potatoes into wheeling, dealing video-jocks. Click! Order a pizza. Click! Order a Cindy Crawford video."
And, with thousands of lobbyists on Capitol Hill, industry is winning the argument. Their extraordinary financial clout-telecommunications companies gave Congress $50 million in PAC money from 1984 to 1993, according to Common Cause-combined with poor leadership has pushed the important issues to the side.
"The public interest vision-the potential of this network-has been driven out as a subject for legitimate policy debate," says Andrew Blau, chairman of the Benton Foundation, which works with non-profit groups on telecommunications technology. "The conversation is structured as a horse race between various businesses. There's a hand-waving that goes on, 'Oh, don't worry about that. Benefits will flow to everyone.' But there's no evidence that that's the case here."
One of the industry lobbyists' greatest assets is that the public understands so little about what is at stake. American communications has historically been divided up by mediums, each with its monopolies. AT&T ("Ma Bell") controlled all phone service practically from the beginning, until federal courts split the company into a long distance company and smaller "Baby Bells" to provide local service. Cable television is a series of monopolies regulated by local commissions. Cellular communications has two providers in each market.
Recently, though, advances in technology have blurred distinctions among these mediums. With increasing ease, television can be transmitted digitally through telephone wires, telephone service can be delivered by satellites or cable, and so on. Telecommunications law, based on the assumption that each separate industry should have its own regulated monopoly, is outdated. That's why Congress is planning to pass a major telecommunications bill this year: The industry needs to be reregulated.The logical response to the crumbling walls that once separated industries is to phase out the monopolies altogether and usher in an era of competition. Instead of one choice for local telephone service, for example, we'd have two or three-or six.
Now, consider the quantum leaps information technology has been making: Computers are getting faster, cheaper, and easier to use. New compression techniques let us send more information over existing wire, and higher-capacity wire is being laid all the time. Then, imagine marrying these advances with the hypercompetitive environment that restructured telecommunications regulations would create: The result would be businesses vying to use this technology to offer more and better services. Soon, as commonly as we pick up the telephone, we could send each other massive computer files and talk by interactive video. That, in essence, is the information superhighway.
Over the next 10 to 15 years, though, the only companies with the infrastructure to build the "highway," and the range of interactive services it promises, are the phone and cable companies which already have wires going into every home and business in the country. The question for Congress is this: How do you work against the forces of monopoly? Since technology is always developing, it's a moving target.
It seems daunting, but we've faced similar challenges before. Each time a new technology has emerged-telephones, radio, broadcast television, cable-government has tried to balance profit and the public interest. Take the American experience with railroads. For most of the nineteenth century, the rails were controlled by a handful of rich men, such as Cornelius Vanderbilt and Andrew Carnegie. Virtually unrestrained by government, they formed monopolies and charged what they pleased. For example, Carnegie, also a steel magnate, could charge his competitors stiff prices to ship their steel, and keep the upper hand.
Eventually, the anger of farmers, merchants, and rail travelers rose to a fever pitch and Congress stepped in to guarantee that everyone-from huge conglomerates to small-time merchants to ordinary folks-could use the rails at a non-discriminatory rate. Under common carriage, as it was called, owners could still make large profits-and still had plenty of incentive to lay more track-but the larger public interest was preserved as well. Railroads, after all, were a vital public resource.
As telephone technology emerged in the late nineteenth century, the common carriage principle guided the construction of a national network. Again, building two phone systems-so that competition could keep prices down and preserve non-discriminatory access-would be expensive and wasteful. So we settled for one regulated network.
Common carriage has been vital in the past, and it will be even more so in the future. We are shifting to an economy where much more of our lives will consist of transactions transmitted in digital form over electronic "roads." When the day comes-and it's coming soon-that we send video and other data over wires as commonly as we now use interstate highways, it will be crucial to keep those wires open to everyone.
In addition to common carriage, there is another important principle that ought to-but probably won't-guide the construction of these networks: "open architecture." This means that any one point on the network can contact any other point without having to go through a central server. Again, the phone system is a model. You can pick up the phone and call anyone you like. You don't need permission from a central operator. And the phone company doesn't have any control over what you say on its lines.
The Internet works the same way-that's one reason the world is so in love with the global computer network. There is no headquarters, no clearing house through which everything must pass. Any one site can contact any other site. Computers on the network do need a common language, or protocol, but besides that it's anything goes. If the coming superhighway were constructed this way, fancy video-on-demand and interactive shopping services planned by Bell Atlantic and AT&T would be supplemented by alternative sites for work, play, or just ordinary communication.
The Internet shows that the alternatives can stretch as far as the imagination-from hundreds of Bruce Springsteen fans trading gossip and bootlegs to physicists discussing the latest twist in subatomic string theory. The "Thomas" server at the Library of Congress posts congressional legislation, the Federal Register, and other public documents. The Internet, as any of its 30 million users can attest, actually delivers on the language of "empowerment" and "personal choice" used by telecommunications executives.
The Internet is also a remarkably dynamic marketplace, less a shopping mall than a street bazaar. Anyone can set up shop and sell what they like. Programmers sell their software; car magazines sell ads for their online editions. America Online, which provides Internet access with a convenient, easily understood interface, had 67,000 subscribers in 1987. Now it has 2.5 million. A friend of mine who three years ago hardly knew the difference between a mouse and a modem is now editor-in-chief of a company called Tripod. The service of news, information, and entertainment has created a dozen jobs.
The open architecture of the Internet has also proven a boon for grassroots organizing and charity work. One activist runs online town meetings and Hispanic culture sites in Colorado's San Luis valley; an umbrella organization called HandsNet links 3,500 volunteer and professional organizations. There are dozens of "free-nets" providing easy access and community information.
Juiced up with faster computers and software, and higher capacity wire, the superhighway could easily provide teleconferencing, so a teacher in Albuquerque could conduct a class in Harlem. Educational materials, which now languish for lack of a proper distributor, could be picked up and zipped around the country in a flash. Pick your favorite dream: a national electronic Library of Congress, cross-cultural exchanges, interactive literacy training.
Sounds good, right? This vision of the superhighway resonates with the hopes that have been stirred by politicians, journalists, and industry. But while telelearning makes for good public relations, telecommunications companies have something else in mind. Instead of an easily accessed system of public highways, industry would prefer it be a stratified cyber-world, a series of toll-roads that head straight for the mall and the race track. Here's how Paul Shumate, Jr., an executive at Bellcore, a Baby Bell research consortium, described the potential of online gambling and video games to Macworld magazine: "You suck 'em in cheap. Then, as they get to higher and higher levels, increase the rate per minute."
Hired Guns Ride to Town
In 1994, Vice President Gore excited the country's imagination with dreams of a superhighway that would "educate, promote democracy, and save lives," and the administration worked with Congress to produce a bill with common carriage and open architecture as its leading principles. "We were trying to create a climate," says David Moulton, chief of staff to Rep. Edward Markey, former chairman of the House Telecommunications and Finance subcommittee, "in which users could receive basic services for a reasonable price and where small businessmen couldn't easily be choked off."
Rep. Markey's bill passed the House, but died in the Senate. Close observers saw the footprints of industry. In particular, the Baby Bell providers of local phone service opposed the bill, and Republican leader Robert Dole did their bidding. "I don't know how they influenced Dole," says a top staffer on the Senate Commerce committee. "All I know is that we were presented with a list of non-negotiable demands, much of which was clearly written by the industry. We knew who wrote it because it was the same language that the Bell companies had given us before that we had rejected."
One clue to how they influenced Dole: Local phone companies gave $3.2 million in PAC money in the 1993-1994 election cycle alone. There's a reason why The Washington Post calls the Baby Bell lobbyists "The Kings of Capitol Hill." Together the companies earn $88 billion annually. Their hired guns include Roy Neel, a longtime aide to Gore and former White House deputy chief of staff; William Diefenderfer, former top aide to Senator Bob Packwood; and counsel from some of Washington's most high-powered lobbying firms. "The [Baby Bells] cover the entire country, every congressional district," says Brian Moir, Washington counsel for the International Communications Association. "There's not a person up there on the Hill that doesn't have a best friend who works for a Bell company."
The long distance and cable companies have virtually the same agenda as the Baby Bells when it comes to common carriage and open architecture. And they're no slouches either. Cable PACs contributed more than a million dollars to candidates in the November elections. Computer, wireless communication, satellite, as well as television and radio broadcast also have a heavy presence in Washington. And Howard Baker, former Senate Republican leader and chief of staff to Reagan, is chairman of a coalition of long distance companies. "We've been pretty successful in getting what we wanted," says Marlin Fitzwater, the former spokesperson for Presidents Reagan and Bush, who now lobbies for the long distance industry. "Senator Baker has been very close with Dole and [Senate Commerce Committee Chairman Larry] Pressler through the years."
The Republican ascendancy has provided a big boost to lobbyists' standing on Capitol Hill. And they've wasted no time making their allegiance clear. On November 3, just as the GOP takeover was assured, the giant cable company Tele-Communications Inc. wrote a $200,000 check to the Republican National Committee. And lobbyists press their case with regular phone calls and office visits. "Ask our receptionist what she thinks of this bill," an aide on telecommunications to a pivotal senator says wearily. "My name is cursed around here because I get between 150 and 200 phone calls a day."
So what do all these lobbyists want? In a word, deregulation. With money and influence, they are trying to buy freedom from public interest requirements in the coming years. And from the looks of things, the purchase is almost wrapped up. The high-toned words in Pressler's "Telecommunications Competition and Deregulation Act of 1995" promise competition, open access, and universal service. But this bill, like its counterpart in the House, does very little to follow through. Despite their imminent expansion into multimedia and phone services, cable companies are exempted entirely from common carriage requirements. For phone companies providing advanced interactive services, common carriage is optional, but there's little hope they'll opt for it. The crucial distinction between open and closed architecture is virtually ignored.
The assumption behind the Senate bill, and one pushed by industry, is that competition makes common carriage unnecessary. So long as the industry is "untrammeled by excessive regulation," promises Stuart C. Johnson, president of Bell Atlantic Video Services Co., "markets will spring up, and a flood of creativity will pour forth. And consumers, acting with control, convenience, and choice will interact electronically in a manner that enhances both enjoyment and individual growth."
Theoretically, that's possible. But competitive networks take time to develop, particularly when the higher capacity wire that needs to be laid is so expensive. The only players in a position to compete in the near future are local phone and cable companies. And the bill has another provision (for which industry lobbied heavily) that allows phone companies to buy cable companies, newspapers, and TV stations in the same service area, and vice versa. The irony is sublime: A bill that is supposed to break apart monopolies and open up competition instead opens up the field to far more concentrated, less-regulated monopolies. Rather than compete, cable companies and Baby Bells can, and probably will, join forces and block out smaller competitors.
Since competition is uncertain, the absence of requirements for common carriage and open architecture spells disaster. The Internet, openly accessed, user-driven, and always changing, is the precise opposite of what industry has in mind for the superhighway. These companies prefer the closed-network model of cable television. "Cable companies," says Larry Clinton, a lobbyist for local phone companies, "decide who is on their network. They can choose Turner TNT, or not. And they get something of value in return for allowing channels on the network." They also get away with high prices: Before federal regulation in 1992, cable rates were rising at twice the rate of inflation.
Indeed, beyond deciding the network's content, the truly ambitious-and telecommunications companies are nothing if not ambitious-also want to own the content. That's why each of the Baby Bells has a deal with a major Hollywood player to produce entertainment services. Bell Atlantic, Nynex, and Pacific Telesis are aligned with Creative Artists Agency and its powerful chairman, Michael Ovitz. US West owns an equity stake in Time Warner's entertainment division. And the last three Baby Bells-Ameritech, BellSouth, and SBC Communications-are hooked up with the Walt Disney Co. These partnerships provide crystal clear evidence of their intent. They want to build private networks and control the content that flows over it.
What's the trouble with the same entity controlling the pipeline and whatever is pumped through it? It's a certain recipe for anti-competitive behavior. Cable's all-news channel, CNN, is a perfect illustration of the perils. The all-news network has a monopoly on that market, and because two principal shareholders, Time Warner and TCI Cable, also control 40 percent of the country's cable systems, they shut out any would-be competitors. When NBC wanted to start a competitor to CNN, TCI Chairman John Malone simply said, "No." Eventually, CNBC (home of "Rivera Live") got on the air, but only after promising to stay out of the news business.
The miserable fate of community access programming on cable is further evidence of the perils of mixing the ownership of conduit and content. Congress in 1984 required that 15 percent of cable programming be devoted to independent "leased access." They wanted to provide an outlet for educational shows, serious documentaries, and community programming. But cable companies- which prefer to keep their systems stocked with shows they own themselves-have done everything they can to skirt the rules, from charging high rates to burying independent shows on obscure channels. "The only guys who can make a profit," says Matt York, publisher/editor of the Leased Access Report, "are the ones who use that delivery capacity like a pimp. There's no independent expression of an opinion, just a half-hour real estate show, or a series of commercials."
If cable seems bad, a superhighway built in its image would be even worse. And the Holy Grail of "interactivity" seems unlikely to be delivered. John Perry Barlow, co-founder of the Electronic Frontier Foundation, a group that lobbies for civil rights and public interest issues in cyberspace, says companies like Bell Atlantic are planning a "grossly asymmetrical" system. "It's a superhighway with 250 lanes in one direction, and one lane in another" Barlow says. "They drop stuff on you and say, 'We're going to give you just enough back bandwidth to operate the button on your clicker.'"
Indeed, the trial runs of "full-service networks"-Time Warner's in Orlando, Bell Atlantic's in Reston, Virginia-are mostly one-way systems. To the extent that subscribers have interaction and choice, it's to order movies and pizza. The "many-to-many" communication we're promised-where any one site can contact any other-is replaced by a system of "one-to-many." The company that owns the wires controls the content and no one, not the user-certainly not other businesses-can seek or provide an alternative.
Boon or Bust
The promise of the superhighway is that it could be as much of a boon to community and commerce as phones. If Congress keeps rolling over to please industry, it would contribute about as much to public life as Disney World. Schools, churches, hospitals, and small businesses would be shut out in the closed system planned by the telecommunications giants. "It's important to remember," says Moulton, Markey's chief of staff, "that that genius developing the next killer piece of software in her garage-we don't even know who she is yet. Sticking up for her means sticking up for an interest that's not represented here at all. And yet, in terms of jobs created and net benefit to society, that's the most important thing we could do."
This is not the first time that, poised at the beginning of a new communications era, the public has been distracted by false promises. Radio was destined to be a "classroom of the air." Television, in its early days, was championed for its potential to educate and illuminate. Cable, in particular, was championed as a boon for health care-doctors could talk to patients over cable wires-and community interaction. In the "blue skies" period, cable was going to give voice to the voiceless, empower consumers, and inject new life into the economy.
At the dawn of each new era in technology, businesses have sought to excite the public at the possibilities in order to secure a favorable regulatory regimen. Then, having gotten what they wanted, the promises of education, health care, and community benefits are quickly lost. "The superhighway rhetoric has come straight from cable's handbook from the seventies," says Jeff Chester, executive director of the Center for Media Education. "And without good policy, we'll end up with the same electronic nightmare."
Because the issue is so complicated, the public is on the sidelines. The loudest voices are those of the lobbyists. "It doesn't get the emotional involvement that health care does," says Fitzwater of telecommunications policy. "People don't see a direct impact on their lives. That makes it a lot more of an inside game." Roy Neel puts it more bluntly: "Members of Congress don't think there are any good guys or bad guys in this," he told The New York Times. "This is not about right or wrong-it's ultimately about money."
There is right and wrong, though-it's just that no one's framed it in those terms. But it's not too late to start. Neither the House nor Senate bill has come to the floor, and the battle is not yet over. Al Gore, who has been largely silent on the House and Senate bills, has the potential to be a real leader on this issue. If he emerges from hiding to vigorously champion open networks-in terms the public understands-there's hope that the bills could be improved. And whatever package emerges from Congress, President Clinton still has his veto. If the bill doesn't have provisions for common carriage and open architecture, he should use it.
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