TCS Daily

RIP for TD?

By Duane D. Freese - March 4, 2002 12:00 AM

Who said be careful what you wish for?

The regional Bell phone monopolies this week got their wish, at least in the U.S. House, by getting its members to approve the so-called Tauzin-Dingell bill. Campaign donations, measured by the Center for Responsive Politics, averaged $14,700 from 1999-2001 for each of those who voted for the measure, greasing the way to passage. In the Senate, though, it faces a less favorable reception.

That's not only because Sen. Ernest Hollings, D-S.C., considers TD "blasphemy," so it will face a tough time getting past his Commerce Committee and senatorial privileges to become law. It is also because the closer any bill comes to being law - especially one that with potential devastating economic effects - the more scrutiny it will get by everyone. And TD just doesn't bear up very well when put into historical perspective.

Hollings and other senators, whose memories tend to operate on six-year cycles versus the House's two-year re-election worry, know all too well the Bells lied to them back in 1995 and 1996 during negotiations of the Telecommunications Act of 1996.

The Bells then promised to provide competitors - competitive local exchange carriers (CLECs) and long distance companies - non-discriminatory access to their facilities for the opportunity to get into long distance. They have failed miserably to deliver.

On the same day that House members voted on TD, the Federal Communications Commission issued a discouraging report showing that the Bells' competitors after six years of effort still supply only about 9 percent of local lines. And most of those are to business. In addition, local phone rates have gone up more than 17 percent since 1996.

Compare that with what happened in long distance service five years after AT&T was broken up into a long distance company and seven totally separate regional operating companies providing local phone service in 1984. AT&T's share of the long distance market plummeted from 90 percent to less than 68 percent. Today it is less than 40 percent. And rates, meanwhile, are a fraction of what they were in 1984, with AT&T and other providers even offering unlimited long distance for a set rate when parties to calls all belong to their same service.

Why aren't competitors and rates doing better in the local arena?

Basically because the Bells, now only four after merging among themselves, had every incentive to deal with each long distance carrier efficiently and fairly. The long distance carriers weren't competing with them. And the more long-distance business there was, the more the Bells made from fees paid to access their loops. In opening up their local loops to competitors, though, they have every incentive to block access, whether deliberately or inadvertently, forcing competitors into long, laborious efforts to document claims and take them to regulators.

Two cases last week illustrate the problem.

The Illinois Commerce Commission on Thursday had to issue an order to one of the four remaining Bells, SBC Ameritech, that it must wait 15 days before sending special phone rate offers to customers who switch to another provider.

Why not allow it to pitch a better deal faster? Isn't such give and take what competition is all about? It certainly is. Only Ameritech was all take and no give. Its control of the switches gave Ameritech a great advantage. Its rivals had to inform it when its customers wanted a change of service, so Ameritech could swoop in swiftly to win them back. But when Ameritech wooed rivals' customers away, it could make the switch without informing them. And it often waited for weeks before doing so, leading to the former customers of Ameritech's rivals become furious with those upstart telecom companies when they got bills for their service.

As Illinois Commissioner Edward Hurley was quoted in the Chicago Tribune: "Ameritech knows what's happening with Z-Tel (the Ameritech rival that complained about Ameritech's action) customers because Ameritech owns the switches. Z-Tel is never going to win back a customer who is improperly billed."

Out in California, meanwhile, SBC Communications announced it wouldn't meet a March 22 deadline for upgrading a computer system used by hundreds of companies that buy telephone and Internet service from SBC, and then resell it in 13 states.

This upgrade was something SBC agreed to back in 1999 in order to win FCC approval of its merger with Ameritech. It's vital to prevent rampant overcharges by SBC to those companies. As CNET reported, PacWest Telecom, a small telephone service in Stockton, Calif., is now disputing $6 million in SBC overcharges.

"It all points to a lack of respect that (SBC officials) have for the people they do business with; they know they have billing problems," Jim Pickrel, president of both California Internet Service Provider Association and Internet provider Brand X Internet, told CNET.

SBC officials, meanwhile, say such claims by rivals are all "lies." That they are doing the best they can.

Taking three years to fix a problem seems a bit dilatory. Or it might merely reflect incompetence. But how can anyone know that? The incentive for the Bells to do their best in regard to further local competition certainly doesn't exist.

The great flaw in Tauzin-Dingell is that it seeks to provide an incentive for the Bells to expand broadband service, but at the expense of competition in all other realms. The Bells entry into data long distance would mean they would have an incentive to provide other long distance carriers poorer service. TD's answer to that, a bigger regulatory stick of fines, didn't work back in the 1970s to open up long distance competition, why would lawmakers think it would do any better today?

In the Senate, if TD is not RIP on arrival, it will become a dead duck once the true implications become clear. In fact, its arrival there opens the door to raising the true competitive solution to rolling out broadband and providing consumers choice in local phone service.

That solution? Do what worked in 1984. The genius of the 1984 break up of AT&T is that, rather than rely on regulators to enforce rules, the break up provided incentives to everyone.

Structurally breaking up AT&T set the stage for the telecommunications boom that followed. Splitting up the Bells would do the same today. Stanford's Robert E. Hall and Columbia's William H. Lehr have outlined what that would mean. A wholesale arm, without ambitions for long distance, data and other competitive services, would provide the local network services that a host of local phone companies could build advance services upon. A retail arm of the Bells would compete as one of the local phone companies.

TD simply ignores the implications of history. Now that it's passed in the House, it's time to take history into account. That, institutionally, is what the Senate is for - and history is shouting, break up the Bells.

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