TCS Daily

Don't re-write the Telecom Act

By James K. Glassman - March 13, 2000 12:00 AM

Should the government let local phone companies into the long distance market? According to the 1996 Telecom Act, the Bell companies can get into new markets as soon as they demonstrate that they've opened their own markets to competition. Now, some members of Congress want to waive the requirements and let the Bells into the long distance market immediately with a bill called HR 2420. Will it be good for consumers?

For free market fans, this seems on its face to be a tough call. On the one hand, we instinctively abhor government regulations that prevent people from competing in a certain business segment. We'd like the market, not the FCC or the Justice Department, to decide whether Bell Atlantic can sell long distance services.

Unfortunately, as Milton Friedman points out, government-supported monopolies are extremely durable, in fact they are the only monopolies that can exist for a long period of time. And the government spent most of the 20th century enforcing a monopoly Bell telephone system. MCI's lawsuits broke up the AT&T long distance monopoly, and consumers have enjoyed rapidly falling prices ever since. It's the local phone market that never really got with the free-market program.

High-tech execs and VCs call it "the last mile problem." You have these amazingly powerful PCs on more and more desks, getting more capable by the day as computer and software firms vigorously compete. Then you have all these wondrous applications springing up all over the Internet, hosted on thousands of servers and connected to fast fiber-optic pipelines from well-known backbone providers like MCI Worldcom, AT&T and Sprint, as well as scrappy upstarts like Qwest and Level 3.

Then you have brilliant engineers at companies like Ciena figuring out how to shove even more data down those fiber highways at the speed of light. And more brilliant people at Akamai figuring out how to deliver web pages faster, and on and on.

And then, sitting right there between the PC and the boundless Internet, you have that old copper wire owned by the local phone company, slowing down the digital parade. How do you motivate Bell executives to upgrade that line, instead of milking the monopoly and hoping the future arrives after they retire?

Congress decided that the only way to hold the Bells' feet to the fire was to prevent them from offering long distance until the Bells allowed competitors to plug into their networks and offer competing services. If the local Bells are forced to compete to deliver better, faster services in the local market - where consumers need them most - before they can grab a chunk of the Internet backbone business, maybe they have an incentive to improve the last mile. It makes sense. Let's keep the pressure on these guys to serve the customer.

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