Published on Saturday, June 10, 2006 by the American Prospect
Itīs Alright, Ma Bell
What the NSA eavesdropping program might tell us about the Bush
administrationīs love for telecom monopolies.
by Alexander Dryer
Last week, as details emerged of the Justice Departmentīs plan to
have Internet providers log customersī Web clicks and e-mails, the
method behind the Bush administrationīs domestic surveillance finally
became discernible. The new initiative follows the pattern set by the
NSA call-tracking program: The government deputizes
telecommunications companies to carry out its spying.
While critics view this approach mainly as a privacy problem, it has
even more far-reaching repercussions. In fact, it may explain the
last five years of telecom regulation -- in which the Bush White
House has abolished pro-competition policies and approved once-
unimaginable mergers. Moves that had once seemed driven only by the
Presidentīs faith in unregulated capitalism now betray a darker
potential motive: The Bush administration has been promoting telecom
behemoths because it finds them easy to control.
Put simply, if the government wants to spy on Americans, monopolies --
which depend on the good will of government regulators -- are
willing accomplices. Indeed, the only company to stand up to the
NSAīs request for customer phone records was the lone independent
Baby Bell, Qwest. The companies comprising the reconstituted AT&T and
its duopolistic "competitor" Verizon readily acquiesced. The irony is
that in trading away consumersī interests for national-security
concerns, the Bush administration is repeating a mistake made almost
90 years ago, one that led to more than five decades of stifling Ma
Bell monopoly.
That last regulatory fiasco began in the spring of 1918, when
American troops began to arrive en masse at the European front and
military officials were growing worried about the security of the
essential domestic telephone and telegraph networks. In July,
Congress voted to nationalize the entire system -- a move that some
say was welcomed by AT&T, the nationīs largest phone company.
Apparently company executives saw an opportunity to regain the market
control they lost when AT&Tīs patents expired in 1894. President
Theodore Vailīs motto for the company was "one system, one policy,
universal service," based on his belief that "no aggregation of
isolated independent systems" could provide national service.
Government control in the name of national security -- which Vail
knew would last only as long as the war -- was his chance to make
AT&T that "one system."
The gamble paid off. AT&T negotiated a brilliant contract to govern
its single year under government control. While nationalized, it
convinced its federal overseers to push through massive rate hikes
that it had not been able to enact as an independent company. And
most importantly, it convinced regulators that despite its dozens of
prewar competitors, it was a "natural monopoly" and should be able to
run the phone system for the entire country. Thus AT&T got what it
wanted, as did the government, which sought close cooperation from
the company again during World War II and the Cold War. But American
consumers suffered the consequences -- an expensive, slow-moving
phone company -- until the Justice Department broke up AT&T in 1984.
The 15 years following AT&Tīs breakup were a time of intense
competition and innovation. Rates fell and dozens of new services,
from Internet access to cell phones, appeared. But today, the telecom
market is undergoing what industry journalist Om Malik calls a "back-
to-the-future" transformation. Bush administration regulators have
allowed AT&T to rebuild itself. They approved a massive AT&T-SBC
merger, and now are moving a second major merger, between AT&T and
BellSouth, toward approval. The Wall Street Journal described this
merger-mania as driven in part by Bushīs "Bell-friendly" FCC.
At the same time, the commission has done away with rules intended to
encourage competition. To pick just one example, the commission
abolished 1990s network-sharing requirements that allowed upstart
providers to buy access to incumbentsī infrastructure. Without those
rules, America has fallen from a broadband leader to a laggard -- no
longer even among the worldīs 10 most wired nations. Perhaps the only
beneficiaries of the rule change were the established telecom
companies.
Certainly part of the administrationīs motivation for these policy
reversals is its love of laissez-faire capitalism. But this White
House has goals that go beyond economic ideology: It wants help
listening in on Americansī calls. And just as Wilsonīs administration
helped AT&T build its monopoly in exchange for a year of wartime
security, Bushīs administration is prepared to help rebuild it in
exchange for constant surveillance.
Of course this quid pro quo goes unstated. The trade-off is likely
nowhere near as explicit as Paul Begala (in a typical instance of
hyperbole) described it on CNN. "Big government is getting into bed
with big business," he said, before imagining a conversation between
the president and the CEO of AT&T.
The truth is that the government and the telecom companies have such
a closely intertwined relationship that the industry only needed to
see that the Bush administration has what it wants -- approval of
mergers and relaxation of rules -- before it was willing to go along
with any spying plan. Clinton FCC chair Reed Hundt, who politely
describes the current administration as having "an easy-going
attitude about the consolidation" of the telecom industry, points out
that even today, "the government plays a big role" in the companiesī
business. For example, the hands-off Bush FCC itself has imposed
conditions on mergers that veer into the minutiae of telecom
offerings, such as which Internet services can be bundled with which
phone services.
Even conservatives see the danger of this dynamic. Adam Thierer, a
senior fellow at the Progress and Freedom Foundation, a free-market
think tank associated with Newt Gingrich, says that the "regulatory
sword of Damocles" may encourage companies to go along with the NSA
program. "A lot of these things happen in such a way that you wonder
what happens behind closed doors," he says. "You have a company with
many business interests and shareholder interests, and you donīt want
to risk those interests. And you need access to new markets or new
entry policy or maybe a subsidy or a merger approval -- you have to
play ball."
The logic of this dynamic has become apparent in the last several
weeks. BellSouth, SBC, and Verizon -- the three companies that were
competing to become the new Ma Bell before Verizon became the odd man
out -- happily went along with the NSAīs phone surveillance. (Their
bizarre, week-late denials were too carefully parsed to be credible.)
Only Qwest, a relatively small Western Baby Bell with a national
fiber-optic network built to challenge the incumbents, resisted.
Without compelling economic reasons to override their assessment that
the request violated privacy laws, company executives refused to
share their customersī data.
Unfortunately for consumers, the Bush administration has more to
trade away to the telecom companies as it seeks ever-greater
surveillance powers. Net neutrality -- the principle that the
companies shouldnīt be able to offer their favored services priority
access to customersī internet lines -- likely will be the first to
go. As the administration pushes ahead, there will be two big
winners: telecom monopolists and electronic eavesdroppers. The loser,
of course, is the American people.
Alexander Dryer works for The New Yorker in Washington, DC.
