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SpectralShifts Blog 
Sunday, July 08 2012

Thursday December 19, 2013 will commemorate the 100 year anniversary of the Kingsbury Commitment.  There are 528 days remaining.  Let's plan something special to observe this tragic moment.

In return for universal service, AT&T was granted a "natural monopoly".  The democratic government in the US, one of the few at the time, recognized the virtue of open communications for all and foolishly agreed to Ted Vail's deceptions.  Arguably, this one day changed the course of mankind for 50-70 years.  Who knows what might have been if we had fostered low-cost communications in the first half of the century?

Anyway, when universal service didn't happen (no sh-t sherlock) the government stepped in to ensure universal service in 1934.  So on top of an overpriced monopoly the American public was taxed to ensure 100% of the population got the benefit of being connected.  Today, that tax amounts to $15 billion annually to support overpriced service to less than 5% of the population.  (Competitive networks have shown how this number gets driven to zero!)

Finally in the early 1980s, after nearly 30 years (the final case started in 1974 and took nearly 9 years) of trying the Department of Justice got a Judge to break up the monopoly into smaller monopolies and provide "equal access" to competitors across the long-distance piece starting and ending at the Class 5 (local switch and calling) boundary.  The AT&T monopoly was dead; long live the Baby Bell monopolies!  But the divestiture began a competitive long-distance (WAN) digitization "wave" in the 1980s that resulted in, amongst other things:

  • 99% drop in pricing over 10 years
  • 90% touchtone penetration by 1990 vs 20% ROW
  • Return of large volume corporate traffic via VPN services and growth of switched data intranets
  • Explosion of free, 800 access (nearly 50% of traffic by 1996)
  • Over 4 (upwards of 7 in some regions/routes) WAN fiber buildouts
  • Bell regulatory relief on intralata tolls via expanding calling areas (LATAs)
  • Introduction of flat-rate local pricing by the Bells

The latter begat the Internet, the second wave of digitization in the early 1990s.  The scaling of Wintel driven by the Internet paved the way for low-cost digital cellphones, the third wave of digitization in the late 1990s.  (Note, both the data and wireless waves were supported by forms of equal access).  By 1999 our economy had come back to the forefront on the global scene and our budget was balanced and we were in a position to pay down our national debt.  I expected the 4th and Final Wave of last mile (broadband) digitization to start sometime in the mid to late 2000s.  It never came.  In fact the opposite happened because of 3 discrete regulatory actions:

  • 1996 Telecom Act
  • 2002 Special Access Deregulation
  • 2004 Rescision of Equal Access and Bell entry into Long Distance (WAN)

Look at the following 6 charts and try not to blink or cry.  In all cases, there is no reason why the prices in the US are not 50-70% lower; if not more.  We have the scale.  We have the usage.  We have the industries.  We have the technology.  We started all the 3 prior waves and should have oriented our vertically integrated service providers horizontally a la the data processing industry to effectively deal with rapid technological change.  Finally, we have Moore's and Metcalfe's laws, which argue for a near 60% reduction in bandwidth pricing and/or improved performance annually! 

But the government abetted a remonopolization of the sector over the past 15 years.

It's almost a tragedy to be American on this July 4 week.  The FCC and the government killed competition brought about by Bill McGowan.  But in 2007 Steve Jobs resurrected equal access and competition.  So I guess it's great to be American after all!  Many thanks to Wall and the Canadian government for these stats.













Related Reading:

New America Foundation Global Cost of Connectivity (It's bad in the US!)

Posted by: Michael Elling AT 07:17 am   |  Permalink   |  0 Comments  |  Email
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