AT&T’s CEO has a solution to US broadband woes despite billions sunk into the problem. You’ll never guess what it is

There is no good money after bad if you’re the person receiving it

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Comment In an extraordinary piece of advocacy, the CEO of AT&T has not only highlighted the persistent problem of broadband provision in the US but also offered a solution: giving billions of taxpayer dollars to his company to fund its rollout.

There is one critical detail missing in John Stankey’s op-ed in Politico this week, however: that the abject failure of America to get fast internet access to all its citizens has come in large part because of AT&T’s actions and despite it having repeatedly received billions of dollars in tax dollars to fix the issue over the last quarter of a century.

It’s Telco Groundhog Day but with the groundhog replaced by a pot of gold.

“More than 60 per cent of Americans have been able to work from home during the Covid-19 pandemic thanks to high-speed internet connections,” Stankey began his creed, noting that this extraordinary feat was only possible thanks to companies like his that “have invested nearly $2 trillion to connect our communities, incentivized by sound, pro-investment policies.”

This money “has been well spent, providing most American consumers good value over some of the world’s best networks,” he reveals, before getting to the bad news: “But there’s a problem: Our networks still don’t reach everyone, and private dollars alone won’t solve this challenge.”

It’s probably worth noting that while the small number of very large cable companies that dominate the telecommunications market in the United States have indeed invested huge sums of money in building out their infrastructure, they have earned many times that amount from the services they then sell over those wires – which is how business is supposed to work.

AT&T boasting about paying for networks is equivalent to McDonalds highlighting a vast investment in dead cow. Except McDonalds isn’t asking the federal government to pay for more cows so it can turn them into burgers to feed people in areas that don’t have one of its restaurants. AT&T is.

Accessible, affordable

“Now is the time for legislators and policymakers to act to ensure the educational and economic success of all Americans by making broadband connectivity more accessible, affordable and sustainable,” Stankey argues.

“Market forces and private companies can’t do it alone because of the lack of return on the significant investment necessary to reach all Americans. But it is in society’s interest for our government to financially incentivize the investments necessary to ensure that all children can learn, and all workers can do their jobs. Through a mix of public subsidies for low income households and smart policies that encourage new infrastructure investment in unserved areas, we can finally close this gap.”

In some respects, America does have a unique problem: it is a very big country. But a much larger issue is the fact that the (extremely profitable) cable industry has built itself around a model of owning all the lines that connect up the country.

Everyone needs permission to use those lines, and since the cost of install a new line for every would-be telco is so prohibitively expensive, the industry has turned into a oligopoly where Big Cable has seemingly colluded to carve up the country into small markets where they can avoid competing with one another in order to reap the largest possible profits from the markets they effectively control.

Snail on a leaf... looking surprised (yes, that's possible). Photo by SHUTTERSTOCK

Anyone else noticed that the top countries for broadband speeds are well-known tax havens? No? Just us then?

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It is this market that has resulted in the most technologically advanced country in the world, the inventor of the internet and the home of almost every huge internet company, ending up far down the table when it comes to coverage and speed of internet access, and even lower when it comes to cost.

We've heard this before

Everybody agrees - in fact, agreed a decade ago - that a move to fiber optic cables is the inevitable next evolution of communication. But when it comes to rollout of fiber, the United States is far below the average.

The provision of fiber is especially important because the exact same argument that Shankey makes today was one that was made back in 1991 to ensure that America was ahead of the world when it came to fiber optic technology. The people would fund an upgrade to the entire network by paying additional low monthly fees and America would be riding on top of the “Information Superhighway” - remember that term from the Clinton era?

It resulted in the local phone incumbents - AT&T, CenturyLink, Verizon etc - receiving, every month from every user, a special fee to fund the rollout; a switch from copper to fiber. And yet, despite a total of roughly $400 billion being given to the companies between 1992 and 2014, it never happened.

What happened instead was that Big Cable pushed technological advances to get faster speeds out of their existing lines. The fiber never happened but we did get ADSL over copper. And why should we care when we’ve got much faster internet access?

Except of course, we have again hit the limits of copper, especially with the widespread use of high-definition videos through Netflix and YouTube and, as Shankey points out, the massive increase in things like video conferencing as a result of the pandemic. According to the plan developed in the 1990s - and paid for by the American public - by 2014 everyone would have gigabit speeds. Like Korea. But we don’t.

Lessons learnt?

It is not hard to take all this history, the global stats, and the numerous in-depth market analyses of the US broadband market, and reach the conclusion that the problem is how the market is structured.

Namely, a small number of very large companies that control all the access and use it to extract maximum profit - to the extent that while they do invest in upgrading the networks, they only do so in ways to retain control and do not venture into areas where the profit margin is lower or where they would risk disrupting the oligopolistic alliance that maximises money for all.

You could even point to the numerous examples of how other countries structure their broadband provision, or look at examples within the United States itself where cities have invested in fiber networks themselves and then had other companies provide their services on top of that city-owned network: something that has repeatedly resulted in faster speeds and lower prices.

But, AT&T has a better solution: stick to the status quo and have the American taxpayer fund its vast inefficiencies.

“Here are four specific things Congress and the administration can do to meet the goal of bringing high-speed broadband to every American family,” argues Stankey in his piece. “First, we need to identify where broadband is unavailable with geographic precision.”

Time to modernize

He also asks the subsidy service for poorer families so they can afford over-priced broadband prices to be “modernized” and “be funded through direct congressional appropriations instead of the antiquated, inefficient and unsustainable excise tax on an ever-shrinking base of voice phone services.” A system that, incidentally, hits AT&T hardest given its dominance of voice phone services.

The third of four suggestions Shankey has is, yet again, to give AT&T more money: “As Congress debates earmarking up to $80 billion for rural broadband as part of the next round of pandemic relief, we should give equal weight to wired and wireless options.”

Shankey complains that the bulk of that money is aimed at “subsidies toward gigabit speeds (fiber) over other technologies (such as fixed wireless).” In other words, the laying of new lines that AT&T will not control outright instead of using its existing infrastructure to provide people with slower, more expensive broadband.

And in case this argument seems weirdly familiar, it is the exact same one back in the 1990s: let’s not replace it with expensive fiber - why not use what we already have and get faster speeds out of it?

Stankey: “It is simply not practical or responsible to assume a fiber broadband service can be delivered to every unserved rural household - the prohibitive cost is part of why connecting many of these households has been uneconomical,” he argues.

Instead: “Proposed solutions should also support wireless solutions, so long as they can meet defined performance criteria, and satellite may be required to reach the most remote locations. Being overly prescriptive on the technology solution could result in some homes being permanently unserved.”

Long run

And the fourth and last suggestion? Give AT&T more money: “Lastly, Washington should enact a policy framework that incorporates sustainable funding mechanisms for the long run.”

This one comprises “maintaining a regulatory approach that sustains continued private investment in deployment and upgrades is just as important as modernizing the patchwork of public sector programs.”

Or, in other words, pay AT&T to install AT&T lines that it then controls in perpetuity rather than have local or federal government pay for the actual lines and then have ISPs and telcos run services on top of them. And this from a business that made $13.9bn in pure profit last year.

But its CEO has “A Game Plan to - Finally - Connect Every American to Broadband.” ®

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