April 23, 2014

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Eavesdropping as a Telecom Profit Center

In 1980 AT&T was a powerful institution with a lucrative monopoly on transporting long-distance voice communications, but forbidden by law from permitting the government to eavesdrop without a warrant. Then in 1981 Judge Greene took its voice monopoly away, and in the 1980s and 90s the Internet ate the rest of its lunch. By 1996, Nicholas Negroponte wrote what many others also foresaw: “Shipping bits will be a crummy business. Transporting voice will be even worse. By 2020 … competition will render bandwidth a commodity of the worst kind, with no margins and no real basis for charging anything.

During the 1980s and 90s, AT&T cleverly got out of any business except shipping commodity bits: in 1981 it (was forced to) split off its regional phone companies; in 1996 it (voluntarily) split off its equipment-making arm as Lucent Technologies; in 2000-2001 it sold off its Wireless division to raise cash. Now AT&T long-distance bit-shipping is just a division of the former SBC, renamed AT&T.

What profit centers are left in shipping commodity bits? The United States Government spends 44 billion dollars a year on its spy agencies. It’s very plausible that the NSA is willing to pay $100 million or more for a phone/internet company to install a secret room where the NSA can spy on all the communications that pass through. A lawsuit by the EFF alleges such a room, and its existence was implicitly confirmed by the Director of National Intelligence in an interview with the El Paso Times. We know the NSA spends at least $200 million a year on information-technology outsourcing and some of this goes to phone companies such as Verizon.

Therefore, if it’s true that AT&T has such a secret room, then it may be simply that this is the only way AT&T knows how to make money off of shipping bits: it sells to the government all the information that passes through. Furthermore, economics tells us that in a commodity market, if one vendor is able to lower its price below cost, then other vendors must follow unless they also are able to make up the difference somehow. That is, there will be substantial economic pressure on all the other telecoms to accept the government’s money in exchange for access to everybody’s mail, Google searches, and phone calls.

In the end, it could be that the phone companies that cooperated with the NSA did so not for reasons of patriotism, or because their arms were twisted, but because the NSA came with a checkbook. Taking the NSA’s money may be the only remaining profit center in bit-shipping.

Comments

  1. Steve Wildstrom says:

    A logical theory, but in “The Puzzle Palace,” James Bamford documents how AT&T has been letting the government eavesdrop one way or another, with and without warrants, pretty much since the days of Alexander Graham Bell. What’s new, and what makes today’s eavesdropping qualitatively different, is that high-performance computers and data mining has given government the ability to process that data on a massive scale.

  2. Whoever says:

    The use of encryption is increasing. More smtp servers support TLS.

    I doubt that it is beyond the capability of the NSA or other government agencies to decrypt emails, but I suspect that the practicality of large scale decryption is low.

    While presently few smtp servers require full certificate validation, leaving open the possibility of man-in-the-middle attacks. I wonder if AT&T would partake in such an active role in eavesdropping?

    Gmail supports not just encrypted logins, but also full session encryption — just use an https:// URL when first accessing gmail (https://gmail.google.com)

  3. Chris says:

    Didn’t we just see Verizon’s legal manual published the other day?

    Except for kiddie porn, for which they waive the fee, they’ll be happy to comply with your lawful order for a low, low price which they lay out in the manual. I am quite sure the price exceeds their cost of production.

  4. Matt says:

    I am contacting you to let you know that we featured this post “Eavesdropping as a Telecom Profit Center” in today’s World section of The Issue. The Issue is a blog newspaper whose editorial staff handpicks the best content from blogs each day. Your post was a wonderful one and a great addition to our World section. You can check it out at http://www.TheIssue.com.

    Keep up the great work!

    Matt
    TheIssue.com

  5. Jim Lippard says:

    Paul Kouroupas, VP of Regulatory Affairs at Global Crossing, has written a number of pieces at the Global Crossing blog about who profits from CALEA:

    How Law Enforcement Undermines the “Dumb Pipe” Theory
    Off the books law enforcement

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