Open Letter to FCC Chairman Powell

Adina Levin writes "An open letter to FCC chairman Michael Powell signed by internet and tech industry pioneers explains why the government shouldn't prop up the ailing telecom behemoths. Telecom companies bought expensive network technology with long bonds. That technology has been made obsolete by gear getting faster and cheaper all the time by Moore's law and Metcalfe's law. The telecom companies are asking for the equivalent of a bailout for their investments in sailing ships after the advent of steam. The way to speed the deployment of broadband to homes isn't to prop up businesses based on old technology, but to let uncompetitive businesses 'fail fast', and let new competitors play."

Comments

Legitimate reason for bailout?

[httpamphibio.us]

Doesn't their existing infrastructure, and social dependency on that infrastructure, give them a somewhat legitimate need for a bailout? If other, smaller, more efficient companies can replace everything the telecom behemoths do, then let the big boys suffer, but is that the case? Can smaller tech savvy companies do everything the large telecoms do or are we talking strictly about broadband internet?

Re:Legitimate reason for bailout?

[evbergen]

This is why we should seriously consider abolishing the government and leaving everything to the market forces.

I don't know about you, but I'd sure miss the powers granted to me by the fact that I live in a democracy right now, and the rights granted to me by my country's constitution.

Go back to the jungle, or participate in a free fight, if you think that's best for humanity. But please allow the rest of us to strive for some civilization. Thanks.

Re:Legitimate reason for bailout?

[October_30th]

This is why we should seriously consider abolishing the government and leaving everything to the market forces.

Like health care? "Sorry, sir. I know there's a gaping wound in your skull and that it hurts, but your credit is no good here. Please go away and die outside in the gutter with all the other poor people."

Like law enforcement? "I'm sorry, sir, but there's nothing we can do. You have not paid for our police services. We cannot dispatch officers even if there's a murderous psychopath banging on your door with a bloody knife in his hand."

Like rescue services? "I'm sorry to hear that your house is on fire, sir, but we are a business not a charity. You should remember to pay your bills next time."

And so on...

People like Friedman and Hayek have proved

You can't really prove anything in even hard sciences like physics. Saying that something has been proven in economics or sociology is just ridiculous. Like psychology, economics and sociology are not hard, predictive sciences (some would say that they're not science at all) in the same sense as physics or chemistry.

If capitalism were a scientific theory, it would have been dropped a long time ago because it has no real predictive power and often contradicts with the real world observations.

Re:Legitimate reason for bailout?

[October_30th]

and have a license to carry a Ruger .38 to do so.

And I am happy to know that if I am burgled or mugged the criminal will rarely have a gun and that it's even rarer that the gun will be used. Regardless of whether the cops will catch the criminal, I can cope with losing some money or property.

Health care? You have only to go to a socialist country to see how that works. They won't throw you out in the gutter, but they will make you get in line, possibly for months to remedy serious ailments such as cancer.

Well, you could say I've been to a socialist country: I was born in a one with mostly state controlled economy. I am currently living abroad in a Northern European country which has had a large socialist party in the government for the last twenty decades. And you know what? The living standards are excellent in both countries. Working public transportation, no people living under the poverty line (check out the US and UK stats in the CIA worldbook for comparison), free public schooling, public libraries and goverment subsidized university level education to allow even the low wage blue collar workers' kids to have an advanced degree if they so choose. Crime is low because the social "safety net" will provide you with basic necessities even you go completely bankcrupt.

As far as your medical care argument goes, you couldn't be more wrong when it comes to Northern Europe and Scandinavia (UK public health care is in real shambles, though). As I've pointed out in one of my recent posts, I've undergone several surgeries. The latest problem with the eye was diagnosed at a private clinic (you know, private clinics are allowed even if the public health care is run by the government!), I got a referral to the local hospital (state run university hospital) and was under the knife in a week. I spent another week in the ward and paid $200 for that - the $8000 operation itself was paid by the society. I pay the progressive 28% income tax gladly for a system like that that is accessible to all citizens regardless of their income (unlike insurances).

You should know more about practical socialism before your spout nonsense like that. That's the kind of black and white reasoning that's not realistic. There is a middle ground between dog-eat-dog capitalism and total commitment to a government run economy, you know.

Re:Legitimate reason for bailout?

[elvum]

The primary reason most people advocate capitalism is ETHICAL, not scientific. It was liberals and their endless dreams of micromanaging the perfect society that gave birth to that study.

Indeed - you only have to look at the fine examples of capitalistic ethics provided recently by companies such as Enron, Worldcom, Global Crossing etc to realise how unnecessary government regulation in the free market is.

As far as your other statements, many of us wish there WAS no police force. I am perfectly capable of defending myself, and have a license to carry a Ruger .38 to do so.

Ah yes, and of course the police do nothing that giving everyone a gun wouldn't. It's like I've always said: you can't beat a heavily-armed lynch mob for a meticulous and professional criminal investigation leading to a fair and open trial.

Health care? You have only to go to a socialist country to see how that works. They won't throw you out in the gutter, but they will make you get in line, possibly for months to remedy serious ailments such as cancer. Even dialysis machines are hardly easily accessible.

And of course, limiting access to healthcare according to personal wealth or employability is such a fair way of arranging things, isn't it? After all, it's obviously entirely your own fault if you're poor or unemployed. I'm sure many of the /. readers left jobless by recent events in the tech industry will back me up on this one.

Incidentally, which socialist countries are you thinking of? How about Cuba as a counter-example? The health service there is excellent, and completely free at the point of use.

Re:Legitimate reason for bailout?

[Phanatic1a]

Read it again.


I did read it again. Apparently, I understood the words it contained. It doesn't grant rights; it recognizes them. The notion that rights exist only because a piece of paper says they do is rather horrifying. The Constitution exists to spell out the specific powers of the government, not the specific rights of the citizenry.

Here, look

Amendment 9: The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.

Translation: Just because we mentioned a few rights doesn't mean others don't exist. They do, because this document isn't the source of rights.

Amendment 10: The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.

Translation: This document says what the government can do. If it doesn't say the Feds can do it, then the Feds can't do it. If it says the states can't do something, than the states can't do it. Other than that, let the people decide how they want their communities to be run.

Yeesh. Before making pronouncements about what the Constitution says, maybe you should try understanding it .

Re:Legitimate reason for bailout?

[Pengo]

I just moved back to the states from the Uk, having lived there for 3 years and 1 year in Switzerland.

I found the health care in switzerland to be excelent, even though it was private. You had to have healthcare, to be registered in a city.. which you had to be to legally rent an apartment. The taxes where I was living was about 14% total, not including taxes on things like Garbage (yes,a stamp had to be put on every bag you take out.. at 1 dollar per bag, it encourages you to recycle everything you can).

My wife went to the doctor a few times, for this and that, and was quite happy with the modern clinic. The doctors seemed progressive and would offer medicine that was both herbal and western in nature. (No robotusin for a cold, but a herbal concoction you get at the pharmacy).

Anyway, I loved the swiss method of handling things, and at 1% un-employement, and guarding their borders in a way that would make the queen of england prooud, they don't seem to have a lot of the problems that other EU countries have with the poor and destitute.

Now, england is a complete flip-side. I have spent more hours sitting in a clinic waiting for the bloody doctor to just show up for work. (No appointment at my local surgery). When the doctor does show up, they seem to not give a damn about what the problem is. My wife sat waiting to be seen for almost 6 hours. No joke. A co-worker waited 7 months for status on a testicular lump that he was worried might be cancer. Yada yada.

When we found out we where having a baby, our first, we decided to pack our stuff up and move back to the states. Pretty scarry stuff. I can't speak for the rest of the EU, I am sure that they are in better shape than Uk. I was watching a debate on Brittish TV, and there is a statistic that if you get stomach cancer, your chance of survival is 6%. In the US your chance of survival is 61%. Fricken nuts.

And as for shoving people out the door. When we came back the US, we didn't have a job or much money. We immediately qualified for medicade and even after I got my new job, the state took care of the child birth and all the expenses including 6 months of birth control after the child birth for my wife and 3 follow up visits. Now we are back on private health care with my job, but to say that the hospital kicked me out is plain false.

I don't think that my case is special. I don't think that a lot of people realize is that in the US, there is help if you really need it. I am not a bum out on the street, but when we moved back to the US.. we did need some help, and I am glad we had it.

Private sector will always be better off than public, even in healthcare. What they need to do is put legislation in to keep the mall-practive law-suits under control and help keep the costs down so insurance isn't expensive for everyone. Look at the mortality rates across the board, you will be surprised what america's health care is churning out. It was a big enough difference for me to move across the world to have our baby.

Cheers

'Little' people would suffer the most

[scrod98]

The companies that go under may be the one's currently providing the 'last mile': services for millions of americans. You cannot abandon the current ability to provide reliable communication service at a reasonable price to many rural and even suburban areas. Many of these people cannot afford cell phones (if available) or obtain any other alternative to land-line. I'm sure it is not cost-effective to solely serve them, while allowing major custoemrs to go elsewhere.

This is where the government bailout would help, by allowing access to areas that would be under-served, and allow time for solutions to that problem.

Jeez, pretty hefty rant this early on a Tuesday. Must be fear of sniper-related traffic in DC.

Re:'Little' people would suffer the most

[albanac]

The companies that go under may be the one's currently providing the 'last mile': services for millions of americans.

Note that the companies will go under. No-one will go around digging up the fibre and copper which are already under ground. Companies that fail will have their assets bought by someone who is not failing. Control of the last-mile will move. The companies are trying to avoid corporate failure. The reason there is an argument, at a philosophical level, is not that some companies will die, but that control of the last-mile will move to companies which have a different paradigm entirely. That is what the corporates are trying to make the government fear, not the actual economics of bankruptcy for certain specific players.

~cHris

Re:Privatize them!

[StrawberryFrog]

Nahh. Privatize everything. It works.

You are trolling, aren't you. In case you don't know about it, go look up Railtrack - the UK privatised rail company that recently declared bankrupcy, leaving the UK govt with the options of a bailout of closing down the rail network. They chose the bailout. The sucessor company (Network rail) is a not-for-profit co.

Moore's Law & Metcalfe's Law defined

[slashd'oh]

• Moore's Law: "The observation made in 1965 by Gordon Moore, co-founder of Intel, that the number of transistors per square inch on integrated circuits had doubled every year since the integrated circuit was invented. Moore predicted that this trend would continue for the foreseeable future. In subsequent years, the pace slowed down a bit, but data density has doubled approximately every 18 months, and this is the current definition of Moore's Law, which Moore himself has blessed. Most experts, including Moore himself, expect Moore's Law to hold for at least another two decades." (read source)
  
  
• Metcalfe's Law: "A theory argued by Robert Metcalfe, inventor of Ethernet, which states that the power of a network increases by the square of the number of nodes connected to it. For example, where X is the number of nodes, the power of the network is X squared. Metcalfe observed that new technologies are valuable only when large numbers of people use them -- consider how less valuable the telephone would be if only two people in the world used them. The network becomes more valuable the more nodes that are connected to it." (source)

Economics

[Bocaj]

IANAE, but what happens when major telcos start to go under? As they struggle to maintain profit margins, how despirate will they get? Can replacement technologies and companies absorb the workforce that will be laid off? How often will this type of thing happen? Think about it, the current plain old telephone system is no good unless it is ubiquitous. That's why the telcos are in trouble. They needed to put entire systems in place before they where useful. Fiber is fantastic except when it comes down to two little wires in the last mile. In for a penny, in for a pound. Telecommunications systems need to be complete or not at all. How do we get the technoloy in place before it's obsolete?

Short Term Impact

[skroz]

It seems to me that the long term goal of replacing outdated infrastructure and ancient business models may be reached sooner by this "fail fast" proposal, but the chaos produced would be devastating to customers. Service outages, price fluctuations, and provider changes could cripple customers large and small. The industry that might come out of such a proposal may be worse off for the experience.

Re:Privatize them!

[RobinH]

Government subsidies are bad.

Riiiight. The streets around your house will look awful funny when only 70% of your neighbours pay their road construction bills. 30% of your street will be dirt road, the rest paved?

I suppose education should be completely privatized too. That way, the only chance a child from a lower economic class has to make something of themselves will be torn away because their parents can only afford to choose two of these three alternatives: 1) feed them 2) clothe them 3) educate them.

I suppose, by your logic, that I should have to pay for my own dedicated wiring from my house to the electricity provider of my choice, right? Would we really have, like, 99% of all houses connected to the electical grid (therefore, accelerating the growth of other technologies like electrical appliances) if distribution was privatized? Would there be any incentive to have a step down station in bumsville, nowhere?

Markets work, u know?

Markets work with quite a bit of help. Do you think they'd work if we didn't have laws regulating fraud, disclosure, etc.?

Bailout

[Omkar]

The recent spate of government bailouts (airline, steel, etc.) reminds me of the S&L scandal in the 80's. I believe Japan had a similar problem as well. Instead of letting some 'creative destruction' take place, as our govt. did, the Japanese bailed the incompetent banks out.

Result: their economy has been stagnant for a decade.

Let's hope the govt. has learned from their mistakes.

Traditional telcos aren't going bust

[Cato]

If you look at all the telcos of various types, it is the incumbents (RBOCs, Baby Bells, ILECs, PTTs...) who are surviving quite well and even prospering. They didn't get sucked into the IP-based boom/bust as much as others, and more importantly their legacy phone switches make significant money through well-established per-minute billing. Wireless operators who charge per-minute are also doing OK, although 3G will probably kill some of them off.

It's precisely the next-gen telcos (CLECs, ISPs, xSPs) who invested in the new IP technology that ran into the boom/bust and are struggling or going bust. WorldCom is something of a special case - it had a lot of legacy technology that should have tided it over, but the accounting shenanigans were too much to survive.

This doesn't mean that IP-based networks are a passing fad, though - all that's happened is that the pioneers have gone through the normal bleeding-edge live/die cycle. Some of them have made it, some have gone bust, and all the old-line telcos have adopted the same technologies.

I agree that failing telcos should normally not be propped up - as long as someone can step in to maintain services by buying up their assets, particularly local loops that are hard to recreate, the customer shouldn't notice that much interruption. My problem is with the analysis that the legacy technology is why telcos are going bust.

Security of Internet-based phone system

[MichaelCrawford]

There's a concern I have that I think I first read in one of Bruce Schneier's crypto-gram newsletters. Ah, here it is:

• Phone hacking, the next generation

The problem is that if the telephone system becomes based on the Internet, there will be catastrophic security breaches in our telephone system.

This is because every node on the internet can have packets directed at it by any other node. That's the whole point of end-to-end. But that means any joker with a PC can log in to his ISP and start up h4x0r scr1pt5 to start cracking phone switches.

With the current phone system, control signaling is out of band - end users can only control the phones at each end of the connection, and cannot control the functioning of the switches in between. You can command the switches by dialing a number, but you can only route your call this way, not control the basic functioning of the switch.

To a large extent security can be maintained by keeping the telco equipment in securely locked buildings.

But the protocols used for the phone system apparently aren't designed with security in mind, so that when they are adapted to the Internet, they become gaping security holes.

Potentially someone could do some clever work and bring down a whole nation's phone system, if it were on the Internet.

The convergence of the telephone system and the Internet has already been going on for a while. It is quite common for long-distance calls to be routed over the Internet, so you get phone-to-phone VOIP without the user being aware of it.

It is also common for telcos to be ISPs, and they just use the same fiber for voice and data. It's more economical to use the same data formats and protocols for voice as well as data, so they transmit all the voice calls with the Internet Protocol.

Let the Baby Bells compete

[anonymousman77]

Why are the Bells forced to lease out their DSL connectivity to other companies at below cost? Does this really spur investment? The reason that most people do not have access to DSL is that the Bells will NOT invest until they are allowed to compete against cable companies DIRECTLY

Do cable companies have to let the telcos use their cable at below cost?

What will happen to the parasites (CLECs) when the hosts (Bells) die?

Deregulate the Bells and let true competition take hold. You will not regret it, Mr. Powell

neo-economic-liberal bullshit

[dmiller]

Well, the point is that it is fundamentally wrong for the government to do anything to hinder the workings of the market economy.

I sincerely hope that you are joking, or playing devil's advocate. The "market economy" is a fiction, created by government contrivance. Do you really believe that it is some sort of objective truth? or that it is the ultimate expression of human desire for advancement?

The market economy has done such an excellent job in protecting the environment and promoting individual liberty. Ironically enough, the "free market" has given us the most blatent interferences in market freedom that we have seen.

This is not to say that the market is undesirable or is not an excellent allocator of (some) resources - just that is it insufficient as a complete societal model.

The market economy depends on a strong government.

[Per Abrahamsen]

It is far more profitable to either kill or join with your competitors, than to compete with them by offering better products at lower prices. This is why a strong government is needed to ensure a working market, based a continues struggle to provide better goods at lower prices than your compatitors.

Without such a strong government, producents will join force in guilds, who keep the market closed to outsiders, by force if necessary. This was the situation until the development of nation states with a strong King as the leader.

Unfortunately, this violates the foundation for the Libertarian belief, namely that all evil is created by government and all good come from the market. And as always when belief and reality slashes, the believers are unable to see the reality.

Of course, this isn't an excuse for the government to take up other tasks than ensuring that players on the market follow the rules.

I have to wonder...

[AtariDatacenter]

...if some of the (hidden) corporate interest behind this goes something along the lines of:

"Please, please, don't bail out Worldcom! We all want to grab a piece of that 50% Internet backbone share for ourselves! Don't bail them out!" ?

It's Called Retirement Through Attrition

[Timinithis]

Following the Sailing to Steam Power analogy:

Government's do not scrap entire fleets when a new technology improves over what is in existance, they strat building new ships and as the older, obsolete ships either sink, are lost in battle, or are too old to maintain they are replaced.

There is some old technology out there, and anyone seeking a bailout on that should be denied. Airlines should be denied bailouts, unless the money is used to go toward improved tech. The $100,000 switch of yesteryear can be replaced with a more relaible $25,000 switch that can handle more traffic, then that is what the money should go for -- improvements.

If their business model is failing, many airlines are in this boat only because of the lessed travel, then they need to adjust..close hubs, discontinue routes, etc. Yes, it would suck for the people that are affected, but what is to stop them from forming a local company to fill the void? It may be too expensive to run a daily flight from Los Angeles to San Francisco for a major airline using a big jet, because there are only 30 people wanting to go each day on average, but a smaller company with a 10 passenger leer could make 3 trips a day, and probably be very profitable.

Government should seek to involve itself in National Defense and Policies, and Proteciton of the Populace -- everything else should be a local matter.

Free markets

[evenparity]

It is funny how many engineers and scientists tend to be libertarian, free-market types. There is this tendency to have supreme faith in the existence of "natural laws."

But economics, psychologists and other liberal arts types realize that human beings defy "nature" all the time. People who study economics essentially study the cases where economics don't work! Psychologists study why people are not rational/utility maximizers.

As far as the broadband/telecom connection goes, did anyone else read this article in Business Week?

It talks about how broadband providers are keeping prices artificially high because they would rather deal with slower adoption rates at higher margins than faster adoption at lower margins because THEY KNOW EVERYONE WILL ADOPT BROADBAND EVENTUALLY and they can force us to pay more. Cable broadband profit margins are about 50 percent now.

Makes you realize how much companies like Comcast can prevent high-speed adoption and screw over the telecoms in the process.

(I canceled my Comcast modem and television service last week. Originally, I just wanted to get rid of the television service, but they told me that if I did, they were going to jack up my cable modem price by $15. I told them to cancel everything.)

How Corruption Works

[Featureless]

You have people running big bussiness and people in the federal government. They're all friends. They went to Yale and Harvard and Princeton together... they drank at the same clubs. Their parents were friends, and their kids are going to Taft and Dalton and Exeter together right now.

Their goal? Simple. Take tax money out of the government, and get it into their pockets.

Back in the Reagan days, their favorite was the defense industry. It was perfect; there's relative secrecy associated with defense approrpriations, and the military bureaucracy is so intense that it took quite a while for the few people looking to find those $10,000 toilet seats.

We also saw a lot of "foreign aid" disappear into the ether, split up between the corrupt foreign officials and the corrupt local ones, all of it more or less going to Switzerland and Grand Cayman. Still do, actually.

More recently it's been Enron ("privatizing" electric utilities was already absurd, and anyone who followed it the time - including me - called it a blatant invitation to fraud; who knew they'd go all the way to turning off the lights to convince people of a fake shortage! Gives you an idea how little these people fear getting caught), the "airline bailout," the "farm subsidy," and of course, don't forget the "tax breaks."

Now it's a "telecom bailout."

All of these scams netted their perpetrators billions, and in some cases tens or even hundreds of billions. Almost none of the people involved have been investigated, let alone caught. It's the new American mafia, ladies and gentlemen.

Michael Powell is a notoriously corrupt FCC chairman; he's blatantly carried water for both the cable and bell monopolists, and under his watch telecom (and especially internet) service has been abyssmal (remember Northpoint? and what happened to the CLECs?) while prices have risen. It was easy for him, a smug "regulator" in a plum job snagged with handy nepotism; all he had to do was stand back and wink while the bells slaughtered their competition. You don't get a job like FCC chair under a Bush administration without knowing how the game is played... Anyway, this goofy letter to him is pretty amusing; you may as well write a letter to Satan.

Until heads start rolling in quantity (and believe me, once we started, by the time it's over we'd need to build a new federal prison), it's open season.

Capitalism is ethical?

[Epeeist]

> The primary reason most people advocate capitalism is ETHICAL, not scientific.

In what theory is capitalism ethical? Nothing in my readings has any statements about an ethical dimension.

> Health care? You have only to go to a socialist country to see how that works. They won't throw you out in the gutter, but they will make you get in line, possibly for months to remedy serious ailments such as cancer.

So what happens if I have cancer, but no money for treatment? How is this different to the "socialist" case?

> You need to think about more than one possibility. Chanting to yourself over and over again "Government can solve my problems, government can solve my problems" is not going to work.

As opposed to chanting "Government can't solve my problems" or "Only the market can solve my problems"?