The Fine Print: How Big Companies Use "Plain English" to Rob You Blind (11 page)

The economic interests of these companies simply are not in line with those of the country. Corporate executives look first to the profit statements they issue every ninety days and then to annual figures, not to what is best for all of us a decade or two into the future.

LIVING IN THE INTERNET SLOW LANE

There’s a mountain of data from numerous surveys that helps reveal how the companies that most Americans and most businesses must rely on for Internet access are damaging the economy. Let’s take a short hike up that steep trail.

The United States invented the Internet, so it ranked number one when the first file was transferred between distant computers in 1969. Taxpayers financed that project through DARPA, the Defense Advanced Research Projects Agency of the Department of Defense. Browsers, which made it easy to use the Internet, also were first used here. Mosaic Netscape, the first popular browser, became available in 1994, spawning the dot-com (and, by the way, the dot-con) era(s) on Wall Street. That browser was the product of research at Indiana University.

By 2011, America’s Internet leadership was strictly historical, as we lagged far behind the rest of the modern world by every standard measure except one.

South Korea has taken the lead in average Internet speeds. Its average download rate was 18 megabits per second, according to Pando Networks, which helps Internet game and video companies move their data efficiently from servers to customers. Romania came in second at 15 mbps, Bulgaria was next at 13 mbps with Lithuania and Latvia tied at 11 mbps. Next came Ukraine, Moldavia, Sweden and Norway.

America was settled well back in the pack—in twenty-ninth place. It was really twenty-ninth and falling, however, because of a continuing failure to make wider investments in universal high-speed access using glass fiber. Under current government policies, we’re likely to be stuck in the slow lanes for a very long time.

The average broadband download speed in 2011 in the United States was just five mbps. That means that a large file someone in Seoul could download in one minute would require closer to four minutes in the United States.

For an extra fee, American companies like Time Warner do offer some urban and suburban customers souped-up service with speeds up to 50 mbps. However, the qualifier “up to” remains a big caveat. Customers complain at message boards about much slower downloads, sometimes only 60 percent of the advertised speed. When lots of people use the same connection point, known as a node, speeds can slow to 15 mbps.

The Central Intelligence Agency, the Organization for Economic Cooperation and Development (which counts the United States among its thirty-four member nations) and other organizations issue annual reports measuring Internet speed, quality, market penetration and other factors. All of these rankings put the United States in the middle of the pack and falling further back from year to year.

We do consistently rank at or near the top in one category: price. The average American consumer pays 60 percent more than a South Korean user. By one measure Americans pay thirty-eight times the Japanese rate to transmit data. Americans who buy a triple-play package (cable television, Internet and telephone bundled together) typically pay four times what the French pay. The French get live television from around the world, not just domestic shows. The French also get unlimited free telephone calls to seventy countries; Americans typically get free international calls only to Canada. The French Internet is ten times faster downloading and twenty times faster uploading than what most
Americans can buy. For all this the French pay a total of €29.99 (about $40) per month.

Millions of Americans, including my household, pay $160 or more, including tax, for a triple-play package. Taking into account the much more expansive and faster services the French get, and depending on how much use one makes of them, Americans pay six to ten times as much for their triple-play packages as the French.

Since most Americans don’t travel abroad, they have no idea that the quality of our nation’s Internet services are slowly devolving toward the third world’s standards. Even for those who do know how poorly our network compares to the rest of the modern world, there is little they can do to improve their own service. Most Americans have only two Internet choices—pay the local monopoly provider or go without. In places with two broadband providers—typically a telephone company and a cable television company—pricing and speeds are likely to be interchangeable. And now even the appearance of competition is disappearing with the cartelization of the industry.

Having looked at the numbers, what are their economic implications?

We’ve all heard the talk about the twenty-first century’s economy being digital. And about how the industrial economy that began in the mid-nineteenth century, which produced vast numbers of good-paying jobs into the late twentieth century, is giving way to a new world of services.

One practical consequence of this transition is that, because many of those services are delivered over the Internet, many white-collar jobs are at risk. As long as Internet traffic moves down two-lane country roads instead of the Information Superhighway, America’s economy will lack momentum, too.

The Internet’s digital economy has resulted in a new way of defining jobs, with the categories
tradable
and
nontradable
. The first kind of job can be sent offshore, the second cannot. The shift of tradable jobs offshore explains most of the wage stagnation in America, especially among blue-collar workers. Millions of factory workers lost their jobs as fifty thousand factories closed in the last three decades, many thanks to government policies that traded jobs to the benefit of Wall Street under free-trade policies.

In terms of job creation, tradable jobs accounted for only 2 percent of newly created positions between 1990 and 2008, according to Professor Michael Spence, an economist at New York University’s Stern School of Business, and researcher Sandile Hlatshwayo. Their analysis of jobs data found that 98 percent of new jobs were positions that require physical
presence here and that the two largest providers of nontradable positions in 2008 were in government and health care. Government at all levels accounted for 22.5 million jobs in 2008, health care some 16.3 million jobs.

Yet in the digital economy, what might appear to be comforting news may not be. Consider that any job done at a computer is also tradable. And, as the Spence report explains, “The tradable side of the economy is shifting up the value-added chain, and higher-paying jobs may therefore leave the United States, following the migration pattern of lower-paying ones.”

This trend is already visible. Tax returns for clients of the Big Four accounting firms are routinely prepared in India, not the United States. Architectural, engineering, design and statistical firms send growing volumes of work offshore.
Los Angeles Times
display ads are put together in India, not Southern California, because the finished digital page can be transmitted halfway around the world in the time it takes to carry it from one office to another in Los Angeles. The labor cost savings are huge because India—like China and the rest of Asia—is filled with educated workers who work for a fraction of what Americans with the same skills cost.

The hard truth about the digital age is that future American jobs, and how well they pay, will be determined in good part by whether America climbs back from twenty-ninth place in Internet speed or continues to slip further behind countries like South Korea, with their lower wage scales and superior Internet.

The few places in America where local government leaders recognized this years ago are now prospering relative to the rest of the country because they are attracting digital businesses. But instead of emulating such successes, the monopolists seek rules that let them force their captive customers onto the slow digital lanes while charging heavy tolls. To stop more cities from building high-speed Internet systems, the monopolists get laws passed to shut down the competition where they can. In North Carolina they got a law essentially banning municipal systems. Robust profits remain the top priority for the growing cartel; world-class service that engenders economic growth goes largely unmentioned.

So what has happened to that promise so brilliantly packaged in the Qwest ad from Roy’s Motel? Looking back, we see a massive scheme that took $360 billion from telephone customers, and at least $100 billion from cable customers, to build a new fiber-optic system that serves only those the telephone and cable companies wanted to serve in densely populated areas (provided they were not poverty-stricken). Instead of
universal service, we are getting a retrenchment made possible by companies selling the public on one idea and then getting laws written that let them serve only those customers who can afford high prices. Curious, isn’t it, how politicians who denounce Social Security, Medicare and even public education as wealth redistribution schemes never mention these privatized systems that take from the many to benefit the few?

Worse yet, the system as constructed is so behind the times that, while highly profitable for the telecommunications monopolists, it retards the growth of the American economy. It operates outside the reach of market forces that could discipline the market and punish companies that abuse customers.

In short, our Internet-telephone-cable cartel has left us with the worst possible outcome. As Susan P. Crawford, a former White House special assistant for technology and innovation, concluded in late 2011: “We now have neither a functioning competitive market for high-speed wired Internet access nor government oversight.” The promise captured in that Qwest commercial of universal, high-speed Internet access has proved to be nothing more than a mirage.

6.
One spring evening
in 2010, Ben and Rita Weisshaar pulled into the driveway of their home in the Nevada high desert north of Reno. As they did, a neighbor came over to alert them to danger.

“You’ve got quite a light show going on out back,” the neighbor reported. They soon saw that, sure enough, at the far end of their lot an eerie green light was emanating from a canister of electrical equipment high on a power pole. As they watched, it sparked, settled down and dimmed, only to light up and spark again. Ben called NV Energy, Nevada’s largest electric utility, and was told that someone would call back.

“Did you tell them it is arcing real bad?” asked Rita, who had retired from an office job at the utility. “You better tell them it’s really bad.”

When his call was not returned, Ben rang again. Finally, around ten that night, a woman at NV Energy called to say that the “trouble man” on duty advised that there was no emergency and that the couple should not be alarmed. The Weisshaars went to bed.

When the couple awoke at six o’clock the next morning, their bedside alarm clock had stopped a half hour earlier, along with every other electric appliance in the house. Rita remembered thinking to herself that it was a good thing she had kept her battery-powered telephone. She rang NV Energy to report the service outage.

When the troubleshooter arrived, the canister was so hot he could not touch it. He told the Weisshaars they were lucky a fire had not started.
Only then did it dawn on the couple that they had taken a big risk in accepting NV Energy’s assurances the night before.

“It was the middle of May, so the wooden fence was all dried out and, if it caught, it would have just gone up in flames, and then fire would have leaped into the sagebrush,” Rita recalled. “We live in a development on the edge of acres and acres of dry brush with only one way out. If the sage had caught fire, we could have all been trapped, everyone in the area.”

As the repairs were being made, Rita asked why the arcing had occurred. The service man told her the company had cut spending on maintaining electric boxes and other gear. “We don’t maintain anything, we just wait until it breaks and then fix it,” she remembers him telling her. “That stuck with me,” she said, “because when I worked for Sierra Pacific Power, before the merger that created NV Energy, it was a very responsible company that took good care of the lines, did all the maintenance work needed and took good care of its workers. Not anymore. All they care about now is cutting costs and increasing profits.”

AGING INFRASTRUCTURE

The problem the Weisshaars encountered with poorly maintained equipment is widespread. America is using up its infrastructure instead of rebuilding it. We grow slowly poorer as roads crumble, dams weaken on their way to deadly collapses and the electric utilities siphon off funds customers pay for reliable power.

One indicator of this? From 1983 to 2010, the number of Americans rose 36 percent, but the number of utility workers fell 15 percent. As the electric grid and the pipes carrying water and natural gas under high pressure age, more workers are needed for maintenance, repair and replacement, not fewer.

Traveling a few miles west of the Weisshaars to Northern California, we find ourselves in Pacific Gas & Electric territory. PG&E owns 2.3 million power poles that, according to PG&E experts then seeking to charge higher rates, need to be replaced, on average, every fifty years. That means replacing about forty-six thousand poles annually. The case made, regulators approved higher rates, including money to replace that many poles.

PG&E diverted much of that money. It replaced just 15,000 poles in 2002 and 2003, less than a third of the number its own experts testified should be replaced. Then it cut the number of replacement poles
drastically in 2004, explaining that it had “shifted resources to higher priority work, thus decreasing the number of pole replacements.” Replacement fell to about 3,300 poles a year. At that rate, seven hundred years would be required to replace PG&E’s poles.