December 2008

Hawaiian Telcom has entered Chapter 11 bankruptcy (see this and this), FairPoint Communication’s CFO is under siege as the company looks for a new CEO and Qwest Communications is cutting another 1,200 jobs as it tells investors not to worry about massive debt repayment deadlines.

Times are tough for a lot of people, of course.

However, phone companies have a special problem:  Basic phone service is not profitable.  Regulators have matched prices with costs; and they have defined costs narrowly, so as to shift  some costs, for accounting purposes, to services which are profitable.

As a result, basic phone service has to be subsidized by overpriced calling features such as voice mail, Caller ID, etc.; Internet access; video or wireless offerings.

That doesn’t work anymore.  People can cut the cord and make do with a wireless phone or VoIP service from their cable provider.  In the case of Hawaiian Telcom, which was recently purchased from Verizon by a private equity firm,

Customers initially had complained about poor service. They have steadily abandoned their traditional land lines for other alternatives, like wireless phones and digital phone service offered by the cable company, a trend that is being experienced nationwide.

Hawaiian Telcom, which employs about 1,400 workers, served about 524,000 residential and business phone lines at the end of September, down about 21 percent from the 660,000 lines when Carlyle purchased the company in 2005.

Hawaiian Telcom, FairPoint and Qwest have all been trying to make it as land-line companies while expanding their Internet access and video offerings as fast as they can with borrowed money.

AT&T and Verizon, on the other hand, benefit from considerable wireless revenues which make those companies profitable — to a point — despite declining land-line revenues.

If we want phone companies to invest in broadband, we have to understand that current regulation will require them to use their broadband profits to subsidize basic phone service.  That may give their investors and their lenders pause.  The lenders and investors could, for example, instead fund cable network upgrades with no diversion of profits.

Or if we want to decrease wireless phone prices — such as eliminating Early Termination Fees — we have to understand that wireless subsidizes basic land-line service.

We could just let the taxpayers subsidize broadband so it can subsidize basic phone service.  Or we could free the phone companies to configure and price their basic phone service more efficiently, let them build broadband networks which can compete with the cable companies or anyone else and free taxpayers to rescue someone else.

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Outgoing Federal Communications Commission Chairman Kevin Martin is pushing for action in December on a plan to offer free, pornography-free wireless Internet service to all Americans, despite objections from the wireless industry and some consumer groups.

according to the Wall Street Journal.

I wonder who is going to decide what is pornography?

And does this mean drug abuse, domestic violence, gambling addiction, infidelity, negligent or reckless parenting, over-spending, etc. are okay?

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Barack Obama will be nominating Eric Holder, former Clinton Administration deputy attorney general, to become the nation’s highest ranking law enforcement official.  This has folks like me worried, as Holder has expressed some unsavory views when it comes to keeping our technology free.

For example, Holder has expressed that law enforcement should have privileged access to encryption information, as Declan explains in his post at CNET’s News.com today.  Declan and I spoke yesterday evening about this and Declan was kind enough to quote me in his post:

“What he’s saying is that government needs to have some sort of privileged access for encrypted information,” said Cord Blomquist, a policy analyst and communications director at the nonpartisan Competitive Enterprise Institute. “Presumably the justification is that terrorists are communicating through encrypted messages and we want to listen in. Giving government privileged access to that is not only an attack on privacy, it’s an attack on free speech itself.”

As if this threat to freedom of expression wasn’t bad enough, Holder has also come out in favor of mandatory data retention for ISPs and other tech companies and he’s stated that he believes the Supreme Court should look favorably upon some government censorship of the Internet.

All of these positions might lead one to believe that Holder favors the 1984 approach to law enforcement.  Rather than following the due process called for by the Constitution and only pursuing those suspected of a crime, or obtaining a search warrant, or doing real law enforcement work, this school of thought favors labeling us all as suspects.

Yet, Holder has opposed the illegal NSA-sponsored wire-tapping program and the current implementation of the PATRIOT Act.  But much of this could be explained away as a matter of political expediency.  Both programs were creations of the Bush Administration, and Obama is about change, after all.

Law enforcement is important, in fact, it’s one of the primary reasons we have a government in the first place.  Unfortunately, Eric Holder favors several policies that would use technology to violate the rights of all citizens, rather than investigating and prosecuting only those who break the law.  This is the reason we have written Constitutions.

Of course, this new administration is also about hope, and we have some reason to hope that Holder will be better than Ashcroft or Gonzales at upholding the Constitution.  But, as Jim Harper of the Cato Institute (and my fellow TLF blogger) said in the same piece by Declan, “What you get in an attorney general is an attorney general, and that’s someone who is going to work to increase the power of law enforcement.”

Well put Harper.

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