“It sure would be nice, but it doesn’t have much chance of happening because of market power, size, etc. I think it would be real hard to do. I don’t think the regulators would let that happen, in my judgment.” – Ed Whitacre on the possibility of taking over BellSouth, 2005.
The definition of a Southern Gentleman, it’s said, is someone so charming they can hand you your guts back on a plate – and you thank them.
If that’s the case, then AT&T CEO Ed Whitacre can have few peers in the charm sweeps. Whitacre has dispatched potential opposition to AT&T’s corporate expansion with the insouciance of a lion swatting a fly with its tail. Victory was complete shortly before the New Year, when the FCC agreed to Whitacre’s second mega-merger in the space of two years without hampering the emerging behemoth. The US regulator signed off on the AT&T-BellSouth merger that Whitacre himself had said he thought impossible, only 15 months earlier.
It’s been a masterpiece of misdirection. Whether by happy accident or design, Whitacre sent the opposition down a dead end, focusing its attention on a non-issue – or more accurately, an “issue” he himself created. The FCC applied the coup de grace with just one one sentence on December 29.
As the product of a series of mergers, AT&T now employs over 300,000 people and turns over $115bn in revenue – eleven Googles, or four Intels. The deal signed off by the FCC over the holidays also gives AT&T full control of Cingular, the United States’ second largest cellular network. Can there be anyone happier in the telecoms business tonight than Whitacre?
In a decade, American consumers have seen the number of Regional Bell Operating Companies (RBOCs), or Baby Bells, coalesce from six down to just three: the odd man out, Qwest, the RBOC which covers the sparsely populated Mountain states, is surely next on AT&T’s menu.
The extraordinary thing is that all this took place at a time in the wake of the fall out from the telecoms bubble. The Bells enjoyed little affection from the public in any case, long before Global Crossing and MCI. and with an unpopular Republican President, Democrats can have been expected to push a few populist buttons, and hear some bells.
What actually happened is that Whitacre got everything he wanted, but only thanks to the aid of The Democratic Party, most of whom aren’t aware how thoroughly they’ve been outwitted.
Now that’s style.
Let’s see how he did it.
Step One: Create Hysteria
In an interview with Business Week in October 2005, Whitacre said he thought taking over BellSouth would be rejected by the FCC. He also made another memorable comment that began the process which culminated in the FCC’s approval in December.
It’s worth citing in full, as we’ll return to it – in light of what people thought he said.
Q.How concerned are you about Internet upstarts like Google, MSN, Vonage, and others?
A. How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes? The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!
That did the trick.
We didn’t see the context at the time, because Business Week chopped up the interview. But when Whitacre later repeated his remarks it was clear that he was really talking about voice and video. Both matter very much indeed to AT&T.
While VoIP is the same old product as a POTS, with a few extra gimmicks – TV is represents the best hope for dinosaurs to escape distinction – and Verizon and AT&T have made huge investments in high capacity bandwidth in an effort to grab the TV market from the entrenched cable operators. It’s an expensive gamble, but the long term rewards are huge: consumers rarely change their utility provider, and are even less likely to change when they get three utilities (phone, TV and internet) from the one supplier.
But both voice and video, which Verizon and AT&T plan to deliver over a packet-based internet network (IPTV (http://search.theregister.co.uk/?q=IPTV&advanced=1&psite=0&author=&date=&site=0&results_per_page=25)) require minimum Quality of Service (QoS) guarantees. Internet protocols are still so inefficient at guaranteeing QoS, that one modest Bittorrent user can clog up a network. Worse, there’s no way to guarantee QoS across hops – although the ITU’s long-term NGN (Next Generation Network) initiatives seek to address these. Without QoS, IPTV providers have to build far more infrastructure than the need to, and this over-provisioning is expensive – and they still can’t guarantee a decent picture.
The key word is “portion”. The one occasion Whitacre repeated the statement again, it was specifically in the context of IPTV – and he ruled out charging the consumer, or even surcharging websites like The Register.
I think the content providers should be paying for the use of the network – obviously not the piece from the customer to the network, which has already been paid for by the customer in Internet access fees – but for accessing the so-called Internet cloud.
If someone wants to transmit a high quality service with no interruptions and guaranteed this, guaranteed that, they should be willing to pay for that.
And if that wasn’t clear enough, he stressed:
Now they might pass it on to their customers who are looking at a movie, for example. But that ought to be a cost of doing business for them. They shouldn’t get on [the network] and expect a free ride.
However, that was enough for an online culture that thrives on conspiracy theories and paranoia. MoveOn, the civic action group, saw an opportunity for a bipartisan “Apple Pie” theme. (No one can object to Motherhood and Apple Pie). If you could imagine 9/11 as a government conspiracy, it wasn’t so much of a leap to imagine your humble blog being persecuted by AT&T.
And so “Net Neutrality” was born.
Step Two: Feign Persecution
Did Whitacre know exactly what he was doing? We can’t say. As an engineer, he was well aware of what he could and couldn’t do from a technical standpoint – and what he might risk.
Unsubstantiated rumors of Big Telco interference in VoIP were rife. We heard them throughout 2004 and 2005 from a number of infrastructure providers across the industry. But Whitacre also knew this kind of discrimination was illegal – and that the FCC had acted swiftly in the case of Madison River, a North Carolina telco which blocked the VoIP indie, Vonage.
He also knew that discriminating against high bandwidth websites wasn’t practical. The Amazons and Yahoo!s expect their traffic acquisition costs to be fixed and predictable – and are locked into long agreements.
Either way, AT&T appeared to be startled by the speed and growth of the “Net Neutrality” campaign, which became the free speech cause of the year.
“This is horrendous,” wrote former San Jose Mercury columnist Dan Gillmor, as he described the imaginary threat. “It’s a threat not just to Citizens Media (sic) but to democracy itself.”
This hysteria seems absurd now, given that the primary backers included Google and Yahoo!, two companies who had just proved themselves delighted to bend over and take it from the government of the People’s Republic of China.
In March Whitacre made emphatic public pledges not to discriminate against websites, but by then the campaign had a momentum of its own. AT&T and Verizon hastily assembled their own response to the “netroots”, led by former Clinton press spokesman Mike McCurry.
But this didn’t seem to matter. The net roots had succeeded in casting the struggle as one between the Old and Bad, and the New and Good.
Despite their ample lobbying funds, the telcos didn’t have a strong suit to play. Public antipathy to Big Telco was historic, mergers were viewed with some distrust, and worst of all, fighting something as nebulous and noble as “neutrality” made technical rebuttals hard to argue. The telcos had to propose the technical argument that the net had never been “neutral”, without risking sounding Hobbesian. They couldn’t explain that piling on bandwidth would be no help to services afflicted by latency and jitter – for who could explain jitter in a soundbite?
Internet experts such as Dave Farber – often called the ‘Father of the Internet’ ,staunch Democrat, and no friend of Big Telco – warned against passing rash legislation.
And what if the corollary of a “two speed internet” was true – and everyone got condemned to the slow lane? Antis found it hard to make this argument, too. Hypotheticals such as the one put forward by the internet entrepreneur Mark Cuban, found little traction:
I would rather have little Johnny’s grandma getting priority for her video checkup with the doctor at the hospital over little Johnny getting his bandwidth to upload the video of the prank he pulled on his buddy. I would rather make sure that information from life support or other important monitoring equipment, medical or otherwise is finding its way without interruption, and without the end user having to pay for an off the net solution. These are the applications that make the net great. These are the applications [sic] that offer equal opportunity to those who are disadvantaged.
So the AT&T lobby came out swinging with a crude, fundamentalist libertarian argument – Government is bad, and don’t mess with big business.
It didn’t really matter, as an apparently arcane debate about the semantics of “net neutrality” was about to detonate.
This had become problematic for the Neuts, for no one in the activist coalition was able to define “net neutrality”, or able to point to an offense that transgressed it. And trying to define “neutrality” – a precursor to being able to mandate it – was a philosophical dead end. As Martin Geddes, telecoms consultant and author of the Telepocalypse blog, puts it:
The moment you try to define Network Neutrality, you have to choose a layer, a time, a market, the participants. You have to make non-neutral choices in order to define the boundary of your Neutrasphere. There is no “neutral” space devoid of favouring the interests of particular market players. The contradiction is inherent. There is no way to finesse it away… Neutrality is a sign of healthy supply competition and sophisticated ways of demand expression. It’s an output, not an input.
Like Goodness, “Neutrality” was a symptom, not a blueprint.
This began to emerge as a problem as the Democrats made haste to draft some legislation to fight the phantom menace.
Obligingly, Democrats created two amendments, one by Markey in the House, another by Olympia Snowe (R-Maine) and Byron Dorgan (D-ND) in the Senate which would have the accidental consequence of killing large sections of the telcommunications sector stone dead – or at least ensuring that everyone who transfers bits for a living has to spend their capital at a lawyer. The Dems’ law would have outlawed QoS, even when the participants entered such a contract by mutual agreement, and institutionalised one slow lane for everyone. Both proposals went down to defeat, which only increased the frenetic level of activity amongst the grassroots.
Few of the Net Neutrality activists realized it at the time, but they’d handed Whitacre a gift: he was now being “persecuted”.
As a consequence, AT&Ts BellSouth merger was progressing through the Administration smoother than anyone can have expected. In October the Department of Justice shrugged and handed the final word to the FCC commissioners.
Victory was almost at hand.
Step Three: “There is no Keyser Sose”
When the FCC’s approval of the BellSouth Merger was published, it contained several pages of “voluntary, enforceable commitments by AT&T”.
Among these was a promise not to do something AT&T never intended to do, specifically “degrade or prioritize any packet transmitted… from the customer … up to and including the Exchange Point closest to the customer’s premises.”
For good measure, the following line ensured it would never interfere with Whitacre’s IPTV service.
And as befits a virtual reality campaign in which the pro-camp couldn’t define what they were fighting for – after the FCC decision, campaigners couldn’t decide if they’d won or not. Save The Internet.com (http://www.savetheinternet.com/) proclaimed victory – while many leading Net Neutrality campaigners commiserated each other in defeat. In their Opinions, even the two FCC commissioners who backed Neutrality, Copps and Adelstein, couldn’t agree. Adelstein sounded jubilant, while Copps sounded like he was going to hit Mo’s Bar for a consoling drinking session.
Net Neutrality was Keyser Sose, the phantom figure in the fictional fraud brilliantly executed by Kevin Spacey and Peter Postlethwaite in the movie The Usual Suspects. He didn’t need to exist, but he was a fundamental part of the misdirection and manipulation.
For the propagation of the Sose Legend, Whitacre also had the internet to help. It served AT&T’s mission in two ways.
Once they’d heard of Keyser Sose’s powers, the bush telegraph of bloggers and grassroots activists talked of little else. Threats both possible and impossible were imagined. Sose’s omnipotence was enough to blind them to technical practicalities which would have undermined the myth, and blind them to the bigger picture, a corporate merger that even the proponents had thought was impossible.
In turn, journalists, who looked to the “grassroots” as an authentic source, also bought into the myth. One reputable English newspaper digested the BellSouth decision by setting the scene, for newcomers, like this:
American telecoms companies … dropped dark hints that high-bandwidth sites such as YouTube ought to pay them for the extra data load they imposed on their networks.
Whitacre had never said it, in fact he’d explicitly ruled it out – but Keyser Sose may well have said it.
When you see that a Google search for “Net Neutrality” reveals little but myth-making, that’s understandable. Hundreds of blogs and campaign sites echo the terrible threats Keyser Sose has made, and the unimaginable destruction he might visit up on us. (The newspaper cited above referred to the “AT&T/SBC” merger throughout. That’s the last merger but one, suggesting haste was a factor).
Journalists who rely on Google as a primary information resource are rarely aware they’re buying consensus reality. It’s a ready-made opinion factory, that seems well, real enough. It tells you what the facts are – and it tells you what to think.
On their part, many of the “netroots” activists who clamored for this meaningless “concession” can barely begin to comprehend the extent of the misdirection. For them, Keyser Sose really exists. He has to.
What impresses your reporter the most about the execution of this merger is that in the very Business Week interview where Whitacre said it was impossible, he set the wheels in motion for its success. This tiny, overlooked little detail gives the story a cinematic quality of its own. Whitacre the Movie, anyone?
For a year, almost every telecommunications activist and political opponent in the United States was looking the wrong way. While corporate America used the internet to showcase an effortless demonstration of its power.
That’s Southern charm.
AT&T must wish every year was Net Neutrality year. If the Democrats oblige, it probably will be.