Just Another Day in FCC Land

This week, federal regulators unleashed yet another telecommunications decision that will slow down progress, costing American jobs and economic growth. Technology’s mantra of “faster, better, smaller and cheaper” is constantly running up against a bureaucratic mantra of “slower, mediocre, fumbling and expensive.”

In its fourth try in eight years to write lawful telecommunications rules, the Federal Communications Commission (FCC) has once again endorsed micromanagement and price controls. This is likely to ensure yet another round of expensive litigation and uncertainty. And uncertainty for investors is like garlic to vampires — it makes them run in the other direction.

According to a recent study by the U.S. Chamber of Commerce, “because outmoded regulations have created uncertainty for investors, market capitalization in telecommunications between March 2001 and July 2004 plummeted 67 percent. In dollar terms, market capitalization fell from US$1.135 trillion to $375 billion.”

That’s a lot of fleeing cash and, with it, jobs.

Forcing Subsidies

The FCC’s decision did have some bright spots, however, like its realization that unbundling requirements for switching should be eliminated. But this step forward was overshadowed by the FCC’s high-capacity loop decision that adopts stringent tests for eliminating forced sharing of loops at government-set prices.

Indeed, the test to show that competitors are not impaired on loops is so tough that SBC issued a statement saying it’s a “sham” which “ensures that DS1 high-capacity loops will continue to be made available at below cost rates to our rivals in more than 99.5 percent of our central offices.” That means that even in major metropolitan areas, SBC will have to subsidize its competitors.

In Houston, Texas, for example, there are 10 different carriers that operate their own fiber networks and serve hundreds of separate buildings, yet SBC will still be forced to subsidize service. A similar scenario holds for Detroit, St. Louis, San Antonio, San Diego and Milwaukee. This forced sharing of property at government-controlled rates distorts the market and makes businesses spend time responding to bureaucrats instead of to their proper task-masters: consumers. But that doesn’t seem to bother the chairman of the FCC.

The Real Deal

In his December 15th statement, Chairman Michael Powell wrote that incumbents such as the Bells “protest too much.” But would any other industry stand for this type of regime?

Imagine if a wine maker was forced to share his casks because regulators decided the equipment was too expensive for others to buy and other wines were deemed non-substitutes. That’s essentially what’s happened in the telecom industry. But it’s so freighted with acronyms and legalese that most people don’t realize it, and those who do understand have trouble explaining it. And while the FCC continues to act as though there’s a monopoly in telecommunications, substitutes for the wireline business abound.

Not only have many Americans chosen to replace their wireline phones with cell phones, but the advent of voice over Internet protocol (VoIP) being offered over cable lines, satellite, DSL, and soon over power lines provides a threatening dose of competition. Add to this the reality that consumers don’t actually have to be using the alternative in order for prices to be kept in check, and one wonders what world the FCC is living in.

Look at Facts

A new study published by the Competitive Enterprise Institute reports that “a one-percent hike in wireline prices prompts a two-percent increase in demand for wireless services.” Author Stephen Pociask says, “In other words, there appears to be statistically significant evidence that wireless competition prevents wireline prices from rising excessively.”

These are the facts, yet FCC commissioners such as Jonathan Adelstein wrongly opine that there is a “wave of rate increases to come.”

Technology has increased choice and forced positive changes in how telecommunications are priced and delivered. But for Americans to reap the greatest benefits, regulators need to learn to get out of the way and let “faster, better, smaller and cheaper” replace “slower, mediocre, fumbling and expensive.” Unfortunately, the FCC hasn’t grasped this lesson.

Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.

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