Telecommunications technology has undergone rapid change and improvement over the last several decades. Users in large corporate settings to small home offices follow the improvements, though users don't adopt new technology as fast as it changes. Responding to the problems resulting from this technological evolution, the courts meander slowly behind, interpreting laws variously but overall in a positive direction. Federal law is subject to infrequent but significant changes, and has been directly affected by corporate financial influences. Finally, the FCC, empowered to oversee and implement the changes of the 1996 Telecom Act, moves generally as Congress and the laws do. This includes set backs to the FCC and Congress in the form of judicial holdings signaling a change in approach is needed.
One might imagine, given these characteristics that the changes to this market over time might look like this:
The growing gap between the users' interests (based on technical capabilities) and the law (as interpreted by the Congress, the FCC, and courts) is problematic because it reflects a gap in consumer expectations, lost economic opportunity, lost benefits to society, and more.
If the FCC were truly seeking to support broadband competition, they would radically deregulate the wireless (in progress, albeit at a slowed pace) and voice-over-cable markets. Regulatory price discrimination in telecommunications would encourage arbitrage on the price of bits - whether for voice or data - which would cause the price of moving bits across a network to decrease. To the contrary, the FCC is seeking "regulatory parity" and a "level playing field" for existing ILEC and cable monopolies.
Tauzin, one of the more vocal critics of the FCC, said its new UNE plan "again points out the urgent need for Congress to enact new legislation designed to promote real - not phony - competition in the marketplace. Given the FCC's lack of leadership, I am now prepared to immediately begin that debate."
Tauzin and Dingell are working on a new version of the bill that should be introduced soon. Staff members didn't address what specifics the new version might contain, but several sources said it could evolve to the point of declaring the broadband market for all providers - not just cable and DSL but satellite, wireless and others - off-limits for regulation. ...
Bells just want to see all broadband services unregulated, said SBC Communications spokesman Matt Miller. Regulating a Bell's DSL service doesn't foster the spread of that service, he said, adding, "this is a regulatory environment that is plagued with uncertainty."
The only uncertainty that Miller speaks of, however, is the future of the DSL-based ISPs.
The Bells' strategy, almost certainly, is to improve their broadband networks only enough to be able to exclude competitors from connecting to them. This is a sensible course. Monopolists always act to limit supply in a market with sustained demand. That way, they can raise prices with impunity - and without making costly investments. ...
"The only thing that's going to get the Bells to spend is if we see cable companies launch more voice-over-IP services that begin to take away customers from the RBOCs," said Pat Hurley, an analyst with the consulting firm TeleChoice, quoted in Network World.
Forget the technicalities of VOIP. Hurley is speaking the obvious. Businesses invest when they feel the hot breath of their competitors on their necks.
Tauzin, FCC Chairman Michael Powell, and a host of others, cried foul following the FCC's Feb. 20, 2003 announcement, claiming that it caused the major RBOCs to lose over $15 billion in market cap. This claim will certainly be used to support Tauzin's future proposals for deregulating the Bells. The claim is "outrageously - and in many cases, intentionally - misleading."
More important than the Bells' market caps are their assets, profits and dividends. Those are real. The assets - the things of hard value that the companies own - didn't drop at all on Feb. 20. And, in its most recent analysis, the respected Value Line Investment Survey projects net profits this year for the four Bells at $17.9 billion. SBC continues to raise its dividend each year, as it has since it was created, and its return on equity last year was a hefty 21 percent. In a struggling economy, the two largest Bells alone generated an incredible $39 billion in cash flow on $120 billion in revenues. They aren't hurting.
Keeping track of accounting costs does not seem to be an ILEC strength. Moreover, the FCC seems to be willing to overlook this fact. Nonetheless, scandalous accounting methods and monopoly-sustaining politics should not be a valid reason to deregulate this industry. The 1996 Act calls for competition. The wisdom of an entire legislature, and not the biased vocal minority, should see the Tauzin-Dingell games for what they are: well-funded lobbying efforts by a special interest.
Representatives Tauzin and Dingell have proposed legislation over the past Congressional sessions aimed at rolling back competition as outlined in the 1996 Act, by deregulating the incumbent local telephone exchange carriers, primarily benefiting the four regional Bell telephone companies. Their bias is obvious: their efforts have been funded by the Bells in a self-interested move to restrain competition and maintain their historic monopoly status. The FCC, with their announcement of Feb. 20, 2003, is headed in the same direction albeit under the rubric of intermodal, or facilities-based competition. This author believes these moves are imprudent and not in the public interest.
The challenges certain to be raised in the courts over the next few years will help define the future of this tumultuous industry. It will be an interesting time to watch: Can the FCC save a dying industry?
The author wishes to thank Chris Savage, partner with Cole, Raywid and Braverman in Washington D.C., for his valuable perspectives on many of the thornier issues discussed here.