If you care about open and fair internet access, you should be upset. The new FCC Chairman, Ajit Pai, has promised to roll back net neutrality—a decisive step that rolls back the commendable actions of his predecessor. A wide variety of protests targeting this issue are on tap throughout the day.
All of this net neutrality action involves just the very last part of the communications grid in the US — the “last mile,” or the part of the network that actually touches consumers. Former FCC Chairman Tom Wheeler pushed through the relabeling of the “last mile” as a regulable service. That utility label needs to be retained, as I’ve often argued.
But there’s an even bigger and possibly more insidious policy in the works that will result in far greater woes for consumers. It involves the not terribly well-understood part of the system called the “middle mile.” As with the last mile, the new administration wants to avoid enforcing any legal protections. And it‘s doing this in a manner that just happens to benefit the powerful forces that take citizens’ money while denying them the best services.
So what is this “middle mile?” Think of a small, local cul-de-sac connected to a medium-sized avenue. The high-speed internet access analog to the cul-de-sac is usually your local cable monopoly (the “last mile”), and the medium-sized avenue is the next step. From that medium-sized avenue, one can eventually connect to consumers and businesses in other cities or neighborhoods, themselves connected to many instances of the last mile. That crucial midpoint avenue — the so-called “middle mile,” or “backhaul,” “special access,” or “business data services” part of the network—is usually a monopoly as well. Often, it’s the local incumbent telephone company—either AT&T or Verizon—that controls that monopoly.
It’s easy to understand how overwhelming concentration in the ~$50 billion “middle-mile” marketplace could cause huge problems for any competition in the last mile. Any new player in the last-mile market will have to pay through the nose to actually get data anywhere useful. Result: Everyone—every business, every residence—pays indirect rent to a monopoly-controlled "middle mile" in their area. The only remedy is regulation, because the barriers to entry by competitors in many areas are simply too high.
And indeed, that “middle mile” is nominally a regulable, so-called “Title II” service, meaning that the FCC has statutory authority to ensure that this leg of the network is provided at “just and reasonable” prices. But over the years, with persistent, mostly invisible effort by the handful of companies that control it, it has been entirely deregulated as a matter of reality.
Almost five years ago, the FCC decided to really dig into this “middle-mile” market. It collected detailed pricing and availability data for every part of the country, including information about facilities, billing, revenue, and expenditures , so that it could actually act like a regulator of this crucial and broken market.
The resulting data collection order—covering all of 2013 and every part of the broadly defined midsegment of the internet access network —was carried out. Every “business data services” element, which includes both facilities between different internet access “points of presence” and every facility from a point of presence to all user locations (that aren’t consumer locations), was examined and documented.
If you have any doubt that detailed information about telecommunications can ever be gathered, rest assured that it can. This data now exists. It’s not all available to the public, but it exists. It is the most comprehensive collection of information ever assembled for an FCC rule-making proceeding.
And what did that information show? That we were being taken advantage of. Economists noted that concentration in this market was uniformly high, with the vast majority of locations served by a monopoly provider—and over 95 percent of locations served by duopoly providers at most. The Consumer Federation of America asserted that as a result of the excessive market power held by “middle mile” providers, American consumers had shelled out over $150 billion since 2010 to cover overcharges and abusive pricing.
And then something inspiring occurred. The FCC proposed action aimed ultimately at helping citizens and constraining abusive “middle-mile” rent-seeking. Based on what the FCC learned about the “middle mile” from all the telephone companies, cable companies, and other providers in this market, the Wheeler FCC in May 2016 issued a proposed rule aimed at revamping the noncompetitive portions of the “middle-mile” marketplace.
Unfortunately, that was the high-water mark of this saga.
Final comments came in by the end of July 2016. Chairman Wheeler’s proposed regulatory revamping of the "middle-mile" marketplace then sat for two months. The Commission had a chance to adopt appropriate regulations for uncompetitive segments of the market (based on an unquestionably complete data record), to constrain incumbent providers’ market power, and to ensure just and reasonable rates, terms, and conditions for the "middle mile," as required by law.
But nothing happened. Wheeler issued a statement in October 2016 saying that he had circulated a proposed final rule to his colleagues incorporating a simplified regulatory framework for dealing with the “middle mile.” He finally forced the issue by putting the proposed rules on the agenda for a public meeting in November 2016. But another event in November took precedence: Following the election of Donald Trump, pressure from the Hill led Wheeler to pull the item from the agenda. Many years of effort went down the drain.
This spring, Trump’s new FCC chairman summarily declared the new test for “competition” in this marketplace to be unbelievably counterfactual, low, and based on the possibility of future competition, effectively gutting the entire idea of regulation of the “middle mile.” FCC Commissioner Mignon Clyburn, still soldiering along as the lone Democratic commissioner, issued a statement bewailing Pai’s step as “one of the worst I have seen” and “abhorrent.” It was clear to her, as it was to anyone paying attention, that Pai’s goal was “deregulation at all costs.”
It appears that when it comes to actual engagement with the extraordinarily stagnant market for communications—a market that touches every American and is dragging down the country’s ability to compete on the world stage—the FCC, led by Pai, is going to be completely passive. Data-driven policy? Not a chance. The handful of companies that control telecommunications in America—particularly AT&T—are delighted to keep the facts about their operations private.
Notice just how helpful Pai has been so far to AT&T. He’s not involving the FCC in the giant AT&T/Time Warner merger. He’s supportive of increasing federal funding for awful 10 Mbps service in rural areas (nowhere near a 21st century service)—money that, in reality, goes to AT&T to further its own business plans. (In 2015, AT&T was paid nearly $700 million under the program. Other carriers benefited as well: Century Link was given nearly $600 million, and Verizon got $150 million.) This money comes from fees attached to landline long-distance phone bills.
AT&T is using that cash to beef up connections to its wireless mobile service towers while simultaneously cutting off DSL service over its copper wires (rather than replacing those copper wires with fiber). Would you want to depend on your smartphone plan and mobile data coverage to run a business? I didn’t think so. This is a waste of federal funding. The only communications medium that should be subsidized these days is open-access, government-overseen fiber as deeply into every last mile as we can get it. (That fiber will support multiple competitive, advanced wireless providers.)
AT&T and Pai are no doubt delighted by the infrastructure proposals foreshadowed in recent remarks by President Trump: “That is why I will be including a provision in our infrastructure proposal—$1 trillion proposal—you’ll be seeing it very shortly–to promote and foster enhanced broadband access for rural America also.” I will bet you dollars to donuts that proposal will somehow, magically, support AT&T’s existing business plans, funneling an enormous amount of cash to that $232 billion market cap company while simultaneously relegating rural Americans to third-class connectivity.
Pai likely has a great deal of comfort with AT&T’s presentation of issues, which fit his wholly deregulatory point of view. To get the talking points, all you have to do is look at his recent comments at the American Enterprise Institute crowing about the “modernization” of the FCC he is pulling off. Not getting in the way of AT&T has unquestionably been helpful to Pai’s career. But is it the right thing to do for the country?
