TCS Daily

Something for Nothing

By Duane D. Freese - February 26, 2002 12:00 AM

Want a glimpse at the future if the Bells get there way on a major rewriting of the Telecommunications Act of 1996 this week?

Proponents of HR 1542, the Tauzin-Dingell Bill, as it is called, for its co-sponsors, Commerce Committee Chairman Billy Tauzin of Louisiana and ranking minority member John Dingell of Michigan, say the legislation is vital to promote the roll out of high speed telecommunications services, or broadband. To do that, they would release the Bells of their obligation under the 1996 law to open their local loops before the Bells enter the most lucrative long distance market, data delivery. Further, the Bells would have no line sharing obligations with competitors for high-speed elements of the local phone networks.

SBC Vice President Tim McKone summed up the Bells' position for these demands this way: "We will not be in a position of pumping billions of dollars into an economy where we won't know what the return will be.''

While at first blush, that sounds almost reasonable, if you think about it, you have to wonder at the mentality it expresses. What kind of business knows exactly what its return will be? Not a competitive one.

AT&T poured tens of billions into cable systems to make them capable of high-speed connections. Why? Because it was trying to get around the Bells' lock on the last mile of phone lines into homes and small businesses. It hoped for a big return if it succeeded, but it didn't know what the return would be. As it is, the one-time mother of all the four current Bell operating companies is selling off its cable division to Comcast, in a deal pending before the FCC, at a loss.

The hundreds of so-called CLECs, Competitive Local Exchange Carriers to the incumbent Bells, that sprang up from the 1996 telecom act likewise didn't know what their rate of return would be. While a number had flawed business models that led to their bankruptcy, the main flaw for many was that they had to rely upon the FCC and the state public utility commissions enforcing the telecom act's competitiveness provisions. To get started, they needed fair access to the Bells' $330 billion local networks - networks paid for over a century with government-mandated access charges. The Bells promised such access in return for getting into long distance, but has stymied the CLECs constantly and has been slapped with nearly $2 billion in fines as a result. Unfortunately, those fines were a pittance compared with the returns the Bells earned by keeping control of 90-plus percent of their lines.

But while everyone else has to take some risks, the Bells say they should know what their return will be before they invest anything.

The Bells in that regard are worse than the railroad barons of the last century, who wangled Congress for huge subsidies to build the first transcontinental railroad. At least those scoundrels had to lay down some track before Congress gave them subsidies. Tauzin-Dingell would give the Bells their freedom from regulation and their entry into long distance before they did anything additional to bring broadband to homes. In short, Congress is given not even an IOU for broadband to homes and small businesses, just the promise that the Bells will deliver it when they know what the return on their investments will be.

And when will that be?

Well, Mark Kersey, an analyst for ARS Inc. of La Jolla, Calif., indicates it may not be any time too soon - not at current prices, not even with hefty government subsidies.

"I don't think the government needs to subsidize broadband when it doesn't really provide value for most people right now," said Kersey, an analyst for ARS Inc. in La Jolla, Calif., told the Austin American Statesman. "The problems are much deeper than anything government can solve."

That was amply demonstrated in La Grange, Ga., where a program offered to extend broadband service to cable customers for free could get only half of them to sign up over two years.

If people won't buy it for nothing, does Congress - or the FCC - really think they can get very many to sign up at $50 per month, the going rate for DSL, the Bells' version of broadband?

The more likely market for broadband at the start is small businesses. Saving a few minutes every hour may not mean much for someone just out having fun or getting his or her e-mail. But it can add up to quite a bit for a small business in dealing with business to business transactions, government regulatory and tax issues as well as providing consumers access. Time for them is money.

And on that front, the key to saving both time and money has been the advent of competitors to the Bells for high speed services - forcing down prices on high speed lines by $500 a month, $6,000 a year.

The threat of Tauzin-Dingell to those business savings, which we've noted before, was emphasized last week in a new study by economists Robert E. Hall of Stanford and William H. Lehr of Columbia University. In Promoting Broadband Investments And Avoiding Monopoly, they pointed out that the Bells "have been slow to deploy DSL, because of its affect on their ability to sell second lines and alternative high-speed services such as T1s to business customers."

At the same time, though, Hall and Lehr point out, the Bells have invested in broadband facilities. The reason? Because they are cheaper to operate and provide other savings than continued investment in old copper plant and switch technology.

The Bells don't need to serve customers with those broadband facilities to make them pay off. Tauzin-Dingell, nonetheless, serves to give them a big pay off for doing those upgrades. It will allow them to knock competitors off of portions of their local loops.

"Deregulating prospective broadband investment assures the sunset of open access provisions of the Telecom Act," Hall and Lehr argue. "If granted, the Bells may be able to classify nearly all of (their) investment opportunistically as intended for broadband data services to avoid pro-competitive unbundling and interconnection obligations."

In short, the Bells would be rewarded with deregulation and the ability to knock off their competitors for something they were going to do anyway.

The Bells will thus get the rate of return they want, only without any oversight from regulators to ensure fair rates or expansion of service. Congress and regulators will have gotten a load of empty promises. And the public? Well, we think we know what it and Bell competitors will get if Tauzin-Dingell becomes law. But that's not something we can print in a family-friendly publication.

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