Copyright c 1994 by Nicholas Johnson "Trends&Forecasts," Educom Review, November/December 1994, pp. 56- 57 "Cop Killer" Telcos by Nicholas Johnson The telephone companies want into the information business. Many of those in the educational and creative communities and in the broadcasting, cable, newspaper, and information industries want to keep them out. Members of Congress, tired of saying "Some of my friends are for it, some of my friends are against it, and I'm for my friends," seem to have been won over. Few care about the concerns of public interest advocates and consumers, such as the fear of price hikes as telcos' monopoly services are drained to subsidize competitive businesses; the frustration over an FCC that can't, or won't, regulate; and the worries over the discouragement of innovation, censorship of content, and conflicts of interest from heavy-handed, anti-competitive telcos. (MCI once won the largest antitrust judgment in history from AT&T by documenting that there are thousands of innovative ways for a conduit provider to disadvantage a competitor using its facilities.) Recent Supreme Court rulings indicate that a communications carrier's First Amendment rights include the right to censor everyone else. That's now true for newspapers, radio, television, cable, and a utility's billing envelopes. You can offer to pay full commercial rates, but if the owner doesn't like your message you're silenced. The telephone networks are the only free speech mass medium left for ordinary Americans. Telcos have to give you a phone line, and they don't censor what you say. But once phone companies start exercising their First Amendment rights to speak through their own conduits, there's no reason the Supreme Court won't give them the same right to censor as newspapers and broadcasters have. At that point, only those with $100 million or more in spare pocket change, who can buy their own newspapers and broadcasting facilities, will have a prayer of distributing unpopular information and ideas. Telco management interests are both clear and understandable. Adding the information business means greater span of control and increases in executive pay and perks. It brings the excitement and glamour of socializing in Hollywood to bored, middle-aged executives. Since no one seems to care about citizen and consumer interests, let's talk about the interests of the telcos' shareholders, because it turns out that the shareholders have more in common with the creative community and consumers than with management. Remember the grief Time Warner experienced from Ice-T's "Cop Killer" song: Nation-wide boycotts of the company's subsidiaries. Bomb and death threats to corporate officers. The likes of Charlton Heston attacking management at shareholders' meetings. Talk of criminal prosecutions. The creative community and the American Civil Liberties Union equally outraged at the prospect of censorship. And this was all from one song, on one compact disk, by one group, with one record company, well down on the organization chart of this media conglomerate. A few little lyrics suddenly became a very big deal. And just think how many thousands of such land mines are lying about out there for a large corporation in the information business. Yet "Cop Killer" controversies will go with the territory once telcos provide content as well as conduit. Suddenly there will be threats of defamation suits, copyright controversies, objections to obscenity (or anything thought "controversial"), and charges of censorship. So long as the telcos stick to conduits -- cables, fiber and satellites -- they can properly dismiss critics by saying, "We're just a common carrier; take your content concerns to providers, courts or legislatures. We won't oppose you or support you. We will comply with the law." In the process,shareholders will get rich beyond their wildest dreams of avarice. But devastating and diverting adverse public relations is only the beginning. 1. Does telco management really have the expertise, and the time, to focus on information services businesses? One study reported non-phone operations were losing telcos $1.7 billion annually not long ago. Do shareholders really want more of these losses? How about a return to shareholders on telecommunications -- what management is supposed to know? Adding information makes their job as difficult (and senseless) as assigning one managing administrator responsibility for both a virtuoso violinist and a steel mill. 2. Are shareholders willing to take the financial bath the information businesses may offer? Motion pictures can lose, as well as make, tens of millions of dollars -- even for those who know the business. More videotext and interactive businesses have gone under than have prospered. Why give shareholders those headaches -- and losses? 3. Getting into the information business only heightens the risk of more antitrust grief. Is this what shareholders are looking for? Is it really worth jeopardizing the solid profits from local, long distance, and cellular data and voice telephone businesses to flirt with the risks in the information business? 4. Finally, shareholders' profits are maximized by expanding capacity, and filling it, with as many independent information providers as possible. Telcos can suck profit out of both ends of the conduit: from both providers and customers. With a skilled sales force focused on that goal, profits are virtually unlimited. When telcos also sell information there's an inherent conflict. Will they make more money by selling conduit space to more providers or by hindering them and selling the telco's own information service? Resolving that confusion only slows response time and invites antitrust suits while reducing conduit revenues, rates of expansion, and business opportunities. There is every reason to encourage telco provision of conduits for information providers. Everyone benefits from the competitive marketplace of ideas it creates: providers, customers -- _and_ telco shareholders. There is every reason to oppose telco provision of information services. Everyone loses. Especially telco shareholders. If they don't want their telco investment to chill, while being portrayed as a "Cop Killer," it's time they told management to take a sip of Time Warner's Ice-T. # # # *** Copyright c 1994 by Nicholas Johnson. Conditions: This material is copyright by Nicholas Johnson. However, permission is hereby granted to download, copy and distribute the text to others if (1) the text is not altered, and (2) there is no charge to the recipient, and (3) this copyright notice and conditions are attached. 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