Last week, as details emerged of the Justice Department's plan to have Internet providers log customers' Web clicks and e-mails, the method behind the Bush administration's 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 President's 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 NSA's 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 consumers' 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 nation's largest phone company. Apparently company executives saw an opportunity to regain the market control they lost when AT&T's patents expired in 1894. President Theodore Vail's 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&T's 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 Bush's “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 incumbents' infrastructure. Without those rules, America has fallen from a broadband leader to a laggard -- no longer even among the world's 10 most wired nations. Perhaps the only beneficiaries of the rule change were the established telecom companies.
Certainly part of the administration's 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 Americans' calls. And just as Wilson's administration helped AT&T build its monopoly in exchange for a year of wartime security, Bush's 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 companies' 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 don't 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 NSA's 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 customers' 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 shouldn't be able to offer their favored services priority access to customers' 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.
