Investing in the Police State

It’s been an interesting month for investors in the spy game – or investors who didn’t realize that they may be playing in the spy game.

On the heels of the controversy over the National Security Agency’s phone-tapping program ("terrorists only," says our government), Gannett’s (NYSE: GCI)USA Today published a story alleging that several telecoms, including Verizon(NYSE: VZ), AT&T(NYSE: T) and Bellsouth(NYSE: BLS), were taking part in yet another NSA program. The telcos were allegedly tracking — not tapping — enormous numbers of U.S. phone calls, with Qwest(NYSE: Q) holding out.

Then we had the mini-backlash, with BellSouth saying, and I’m paraphrasing here, "We didn’t do it." Verizon released a more nuanced statement saying, basically, "No comment. But we didn’t do what they say we did no-how, neither — leastwise as of four months ago."

These stories have grabbed most of the headlines, but the sleeper in the bunch is the widening circle of intrigue around another alleged communications-spying plot — one that would be a lot more nefarious, if it’s true. It again concerns AT&T, which is fighting a lawsuit from the Electronic Frontier Foundation (EFF) alleging widespread spying activities by the NSA through secret, on-site data-diversion and analysis centers.

This week, the Wired News website turned up the heat. The site has published a series of articles on this case, beginning with a public statement by a former AT&T technician about a secret, NSA-sponsored room being built next to a San Francisco AT&T switching room.

The big news this week, now bubbling up to the more mainstream press, is the release of schematics and other documents said to come from AT&T, which appear to detail exactly the type of Internet-spying infrastructure originally described. (You can download the entire dossier here.)

I’m in no position to judge the authenticity of those documents. Suffice to say that, if they’re real, AT&T might have a lot of explaining to do — not to mention our current heads of state.

The investment angle that concerns me is whether or not providers like AT&T will see a consumer backlash from their perceived involvement with the NSA, real or not. Am I the only one thinking of dropping my AT&T mobile account? Do other Americans care enough about their own privacy to use their wallets to punish those who’d sell them out and reward those who won’t?

The sandal-wearing hippie inside me hopes they will, but the callous observer doubts it, at least for now. Witness how eagerly we sign over our souls (or at least our entire online activity log) to the likes of Google(Nasdaq: GOOG) and Yahoo!(Nasdaq: YHOO), just for a few free Web goodies like email and chat. I think that record shows that we’re willing to put up with a large degree of commercial collection and exploitation of our most intimate thoughts.

Will we draw the line at letting Uncle Sam look over business’s shoulder to see what’s up? Is there a limit to how much snooping customers will ignore? Stay tuned. The AT&T case may soon give us an answer.

Comrade Seth Jayson wears his beret with a rakish tilt. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.