Photograph Source: Marcelo Graciolli – CC BY 2.0
On November 5th, the House finally passed the $1.2 trillion infrastructure bill — a bill originally passed by the Senate in August. Pres. Biden’s “Bill Back Better” bill — original priced at $3.5 trillion and now cut to $1.75 trillion –awaits legislative action.
When Biden first proposed his infrastructure plan, he famously proclaimed, “Broadband internet is the new electricity.” And he noted, “Yet, by one definition, more than 30 million Americans live in areas where there is no broadband infrastructure that provides minimally acceptable speeds.” This is what is known as the “digital divide,” the gulf between those who have ready access to computers and online access, and those who do not.
Unfortunately, Biden’s original proposal called for $100 billion for broadband but it was cut to $65 billion. Equally troubling, it originally called to “prioritize support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives.” This was dropped as was his call to override laws in 18 states that block community broadband.
Now that it finally passed, will the broadband plan really end the digital divide in America? Sadly, in all likelihood, it will not.
***
Estimates vary as to the scale of the digital divide in the U.S. In 2020, the FCC found that 21.3 million Americans didn’t have home access to broadband. (The FCC defines “broadband” as 25 Mbps/download and 3 Mbps/upload.) This, however, is a very low estimate.
John Kahan, Microsoft chief data analytics officer, warned that the FCC estimates were “vastly undercounts.” He noted that Microsoft data indicate that almost 162.8 million people “are not using the internet at broadband speeds.” Gigi Sohn, a former FCC attorney and now proposed commissioner, estimated that some 141 million people in the U.S. lack access to fixed broadband. And the online publications, BroadbandNow, finds that 42 million Americans do not have a broadband access.
The U.S. Census Bureau’s most recent (2019) American Community Survey (ACS) surveyed3.5 million households and estimated that more than 20.4 million homes had no broadband subscription at home. Of these, 5.1 million homes were in rural areas while 15.3 million homes are non-rural.
Compounding this picture, only 32 percent of American homes have access to fiber broadband services compared to Norway and South Korea with over 80 percent access, and Spain, Portugal and Japan that are above 90 percent. The Organization for Economic Co-operation and Development (OECD) ranks the U.S. 18th of the 38 OECD countries in terms of broadband usage.
Americans also pay more than anyone else for their inferior telecom services. Fees for a gigabyte of data range from $0.26 in India and $0.27 in Kyrgyzstan to $6.66 in the United Kingdom and $6.96 in Germany. Costs in North America were the highest, averaging $12.02 in Canada and $12.37 in the U.S.
***
The new broadband bill will confront a number of critical factors determining whether it will end the digital divide.
Sascha Meinrath, Palmer Chair in Telecommunications at Penn State University, identifies one factor. “First and foremost,” he warns, “there is a foundational problem in how the Biden administration is approaching these issues. There is no comprehensive national plan, no strategy.” He adds, “In effect, we have a bunch of great programs, a bunch of buckets of funding and a bunch of people in the administration who very much want to do the right thing but are – for the most part – uncoordinated.”
Meinrath also acknowledges that accomplishing something is better than doing nothing. “If we invest $100 billion and get $30 billion worth of useful projects out it, I’d call that a win. But it’s squandering a hell-of-a-lot of taxpayer dollars. This isn’t due to malfeasants, it’s due to a lack of due diligence and accountability.”
Joshua Breitbart, New York City’s former Deputy Chief Technology, puts the problem of the digital divide differently. “I think what the Senate passed, by and large, is focused on rural areas,” he said. In all likelihood, this will be the focus of the final bill.
This possibility was suggested by the FCC’s last major action under Pres. Trump, the “Rural Digital Opportunity Fund.” In December 2020, the FCC awarded $9.2 billion to provide high-speed broadband internet service to 5.22 million unserved homes and businesses in rural areas. Approximately 180 “winning bidders” received grants, some as small as $460, the big winners were: LTD Broadband ($1.3 billion), Charter Communications ($1.2 billion) and Rural Electric Cooperative Consortium ($1.1 billion). In addition, Elon Musk’s SpaceX got $885 million and CenturyLink got $262 million.
***
The roots of the today’s digital divided can be found with the adoption of theTelecommunications Act of 1996. Upon signing it, Pres. Bill Clinton argued that it would “promote competition as the key to opening new markets and new opportunities.” He insisted that deregulation “will protect consumers by regulating the remaining monopolies for a time and by providing a roadmap for deregulation in the future.”
Well, that future never arrived. In 1984, “Ma Bell” – the old American Telegraph and Telephone Company – was restructured from 23 companies into seven separate regional operating companies, dubbed “Baby Bells” or RBOCs.
The 1996 Act “deregulated” federal and state telecom services, especially innovative services (e.g., cable television, the internet, wireless) and fostered a wave of mergers and acquisitions (M&As) leading to the restructuring of the telecom industry. This fueled two rounds of M&As leading to telecom industry’s consolidation into what can best described as today’s telecom cartel.
The Act’s reliance on marketplace solutions led to what Susan Crawford, a Harvard Law School professor and author of Fiber: The Coming Tech Revolution―and Why America Might Miss It (2018), identified as the further the telecom industry’s structure and operational practices. She observes: “A handful of private companies dominate last-mile data delivery in American cities. They choose the richest, densest areas to serve with expensive second-class services – not with malign intention, but with a detrimental effect on the country.” And the rest? That’s the digital divide.
Following merger after merger over the last few decades, four telecoms have come to dominate the telecom market. They — and their 2020 revenues — are: AT&T ($181.2 billion), Verizon ($131.9 billion), Comcast ($108.9 billion) and Charter Communications ($45.8 billion). The “market value” of this often overlook sector of Big Tech is near $1 trillion. Their dominants extends from wireline and wireless services to internet and streaming services as well and are moving to acquire media/content businesses and theme parks.
***
Often overlooked in considering the telecom industry inability to fully address the endemic problem of the digital divide is the political, corporatist nature of the FCC and federal regulation. It’s a process often referred to “regulatory capture.” “Regulatory capture is a big deal,” declared Sen. Elizabeth Warren (D-MA). “It is one way in which powerful corporations rig the system to work for themselves—and the rest of America pays the price. The tilt in Congress is pretty much out there for everyone to see, but corporate influence works its magic even better in the shadows—and that’s where rulemaking occurs.” She added, “when it comes to undue industry influence, our rulemaking process is broken from start to finish. At every stage, the process is loaded with opportunities for powerful industry groups to tilt the scales in their favor.”
Former FCC chairman William Kennard (1997-2001) shared Warren’s perception. He noted,“regulatory capitalism is when companies invest in lawyers, lobbyists and politicians, instead of plant, people and customer service …. Regulatory capitalists would rather litigate than innovate.” He added, “It’s always easier to prowl the halls of Congress than compete in the rough and tumble of the marketplace.”
The career paths of recent FCC chairmen – from both parties – illustrates how regulatory capture has played out over the last decade. Trump’s FCC chair, Ajit Pai – commission (2012-2017) and chair (2017-2021) — served as Verizon’s associate general counsel from 2001–2003. Obama’s chairs were
Thomas Wheeler (2013–2017) served as CEO of the wireless industry group CTIA (1992-2004) and NCTA (1979-1984) and Julius Genachowski (2009 to 2013) served at Fox Broadcasting and joined the Carlyle Group. Equally revealing, Trump’s Attorney General, William Barr served as general counsel for GTE and its successor, Verizon (1994-2008), and, from 2009-2018, served on Time Warner’s board of directors. (The current acting chair, Jessica Rosenworcel, a Democratic, has been a Commissioner since 2012 and, in 2017, was confirmed for a second term.)
***
A quarter century of telecom industry consolidation has led to what can be best understood as the formation of 21st century “cartels.” Perdue University economist John Connor defines cartels as “voluntary associations of legally independent companies that manipulate market prices or industry output in order to increase their collective profits.” He distinguishes between “private” cartels (i.e., “not protected by national sovereignty or by treaties”) and “international” cartels (i.e., those that have participants from two or more nations”). He adds, “private cartels operate secretly to avoid detection.”
In 2012, the journalist David Cay Johnston, in a New York Times op-ed, linked the issue of cartels to the telecom crisis. He argued, “what we’ve witnessed instead is low-quality service and prices that are higher than a truly competitive market would bring.” He went on, noting, “after a brief fling with competition, ownership has reconcentrated into a stodgy duopoly of Bell Twins — AT&T and Verizon. Now, thanks to new government rules, each in effect has become the leader of its own cartel.” He added, “because AT&T’s and Verizon’s own land-based services operate mostly in discrete geographic markets, each cartel rules its domain as a near monopoly.”
The broadband plan will likely further enrich the larger telecoms and also support some useful project. However, a decade from now, we may still be asking how will we end the digital divide?
