Where There's Smoke ... Part V Summing it Up

Way, Way Back

In the old, old days when the 1934 Act was passed, we used the telephone to talk on, AT&T held sway, and we listened to the radio networks for entertainment. The big issues were how to get telephone service out to the rural areas and how to make sure that analog radio signals didn't stomp on each other.

Way Back

Television came along, and decency standards reared their heads. Soon, cable companies built up to provide service where reception was poor. Three national TV broadcast networks served up standard fare to a mass national audience.

A While Back

Cable became more prominent as specialty content networks started offering alternatives to the national broadcast networks. Cable companies negotiated local municipal franchises with local governments, who cut deals to get some public revenue from franchise fees. Generally, one telephone company regulated by a state commission (as well as the FCC) provided service to a community. Cable meant TV and Telephone meant phone calls. Long Distance was regulated by the feds, then deregulated and competitive options sprang up, lowering the costs of calling outside your local area.

Cellular phones began to show up, but they were expensive, so many people just got pagers. In time the capabilities of cell phones began to go up, as prices began to fall.

Telephone companies began to offer high speed data service, but it was very expensive and so only businesses bought lines from the telephone companies. The Baby Bells, recently unbundled from AT&T, talked about a day when they would provide television services over high speed data lines and negotiated rate freezes with regulatory commissions to help finance that vision.

More Recently

Customers could buy dial-up modems that would let them use their phone lines and they could buy service from new companies like AOL or Prodigy to get onto the new Internet and the World Wide Web. It was a novelty to many, speeds were slow, and WWW was ridiculed as meaning "World Wide Wait." But then, Cable companies started offering a new service that provided "always on" Internet at much higher speeds as a premium add on, which came to be known as Broadband. As the curious signed up, they became hooked with a much better service and the Internet boom began to make headlines.

Fairly Recently

Seeing all the revenue that cable companies were getting, telecom companies launched aDSL services, which provided "download" speeds much faster than dial-up, but still slower than cable, and customers could use most of the available capacity to download websites and "surf" the Web. Telecom companies managed their networks and Internet Service Provider (ISP) offers so that "download" was faster, but "upload" speeds were quite slow, because they figured that few people needed to send data that way, mostly e-mails with small file sizes. DSL began to eat into Cable broadband and represent a threat. For the first time, cable and telecom companies were really in competition with each other. But often, that meant that consumers could pick from one of two options, both priced about the same, generally cable broadband was still priced a little more in most markets because it was faster.

On the sidelines, voice over Internet Protocol - VOIP - was being developed and launched. Getting your phone service over your broadband connection was primarily seen as a commercial service, but VOIP startup Vonage raised tremendous capital which it began to spend on TV ads to go after consumer business. Combined with customers who were using their cell phones and dropping their fixed telephone service, telephone companies began to see a drop in their steady Plain Old Telephone Service (POTS), a mainstay of their corporate revenue. A troubling development for a telecom company.

Cable companies saw increasing competition from the two main satellite TV companies, Dish Networks and DirecTV, which made original inroads in rural areas where cable was not avaialble, but then began to sell in urban markets in direct competition with wired cable companies, which had been enjoying steady price increases.

Cellular telephone companies offering very similar services and facing price competition in national markets began to consolidate, even as they enjoyed record subscriber growth based on flat-pricing plans for voice service. They tried to get customers interested in data plans, but customer acceptance remained weak.

How much of this fairly recent private sector competition and market development did the FCC oversee, or contribute to? Not much. One of the principal means of interaction by the FCC was to auction off bands of radio spectrum licenses for vast sums of money, which kept much of the available spectrum licenses in the hands of a small number of well capitalized telecommunication companies. In other words, they limited competition in wireless markets by focusing on spectrum as a primarily a source of revenue for the federal government, rather than a tool to create a diverse market of wireless service providers.

Most Recently

Owning a dominant share of the ever growing broadband market, cable and telecom companies acted in unison to keep municipalities interested in new municipal wireless and FTTH projects out of "their" markets. They supported state legislative initiatives in 2004 and 2005 to ban municipal ownership, and in some cases, to ban even privately provided networks in partnership with municipalities. When most of those measures were defeated, the municipal ownership issue shifted to the Congress, and three other key issues began to focus the debate.

That will be the focus of the next post...