TCS Daily

It's Competition, Stupid

By Duane D. Freese - January 14, 2002 12:00 AM

Why do so few homes and small businesses have broadband Internet access?

To hear only Edward Whitacre, chief executive of SBC (the largest of the remaining four Bell local telephone monopolies), you'd conclude that federal and state regulations are holding up the roll out and controls upon the Bell regional telephone monopolies are inhibiting a telecommunications revolution.

But actions speak louder than words. And actions tell a whole different story.

Whitacre, as reported recently by his home state Austin American Statesman, claims "Today's regulatory rules and uncertainty artificially increase costs, affect how we invest our capital and how we market our products and services... No responsible company could justify fully deploying broadband capabilities and investing in new advanced networks in the face of this uncertain environment."

SBC, with the other Bell operating companies, want freedom - from the promises they made at the time the Telecommunications Act of 1996 was signed. That act's aim was to bring competition in telecommunications down to the local level. And the monopoly Bells, with control of 90 percent of phone lines into homes and businesses, agreed then to open their local loops to competitors - offering wholesale rates to them for key elements of their systems so they could resell them. In return, the Bells could then enter long distance and other advanced competitive telecommunications services.

Rather than open their lines, though, the Bells have dragged their feet, seeking every advantage to leverage their monopoly into other fields. And in their pursuit of the so-called Tauzin-Dingell Freedom of Broadband Act in Congress, they hope to virtually eliminate regulatory oversight altogether. That bill, which House leaders have promised to bring to the floor in March, attempts to distinguish between voice and data services for long distance. It would let the Bells enter immediately into the most lucrative part of long distance - data transmission - and free them from the unbundling requirements for elements they add to their system to deploy digital subscriber lines (DSL), telephone's version of broadband.

But as the general counsel for one of their upstart competitors, Covad Communications, pointed out, "What is the distinction between voice and data? There really is no distinction.'' So, by letting them into data long distance, Congress would doom local telephone competition. There would be no real incentive left for the Bells to open their lines.

It is possibly this prospect of passage that sparks the bravado of Joseph Nacchio, the chairman of Qwest, the fourth largest Bell monopoly. Nacchio predicted to the Salomon Smith Barney conference in Scottsdale, Ariz., that the telecommunications landscape will become dominated in 15 to 18 months by " three or four regional superpowers that have global capabilities but don't necessarily market globally."

That would be a giant step backward for competition envisioned under the Telecom Act. And it would provide consumers no other advantages, such as more rapid roll out of broadband. For despite Whitacre's claims, the Bells need no legislative help to get into data communications.

This month, Verizon reported substantial growth in its DSL service, signing up 225,000 new DSL customers in the fourth quarter to end the year with about 1.2 million DSL customers. Bell South, meanwhile, announced it tripled its DSL subscriber base to 620,500 last year while providing availability to 70 percent of households in its 63 local markets - 15.5 million households in all.

This deployment demonstrates the Bells don't need any more incentives to get into broadband. Bell South is expanding faster than any other broadband provider, even cable providers that have spent nearly $50 billion upgrading their networks in the last three years.

What the Bells desperately need though are some tougher measures to get them to open up their local loops.

Last year, SBC was fined $53 million for failing to meet its obligations to open its lines both under the Telecom Act and under its agreement with federal regulators to win its merger with Ameritech in 1999. The FCC last fall even issued SBC a $2.52 million fine for supplying the agency with inaccurate information in attempting to get the regulator to approve its provision of long distance service in Oklahoma and Kansas.

But those penalties are light, as a Merrill Lynch newsletter noted after SBC was assessed its most recent fine of $1.95 million for the third quarter. "As long as the cost of violating merger agreements is below the cost of allowing competitors to enter the market, it continues to be cheaper to pay the government for violating certain performance targets versus completely opening up the local markets to competitors," the newsletter said.

And it isn't as if the regulators have treated SBC and the other Bells with the toughest scrutiny. A federal appeals court remanded to the FCC for reconsideration its opening of the Kansas and Oklahoma markets for SBC long distance services. The reason? The FCC gave Bell competitors "a brush off" by disregarding their claims that SBC's wholesale rates for its network elements caught them in a "prize squeeze" that "doomed competitors to failure."

You can't have competition if there is no opportunity for profit. And if there is no room for competitors, then Congress ought not to be eliminating federal, state and local regulation on the future telecommunications infrastructure, as the Bells want and the Tauzin-Dingell Act would essentially do for them.

A better answer that would promote more competition, less regulation and ultimately greater investment and opportunity would split each of the Bells into two arms - a retail firm dealing in competitive enterprises and a wholesale seller of its local loops to each of them.

This is what the 1984 settlement that created the original seven Bell telephone companies did for long distance competition. AT&T had to give up its connections into people's homes so long distance competition could flourish. The local monopolies need to do the same now. They should volunteer to do it, if they real want to compete in all aspects of telecommunication.

Break up the Bells or enforce the rules. That's the only way consumers will get the services and the protection against monopolies they deserve.

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