TCS Daily

FCC, Let It Be

By Hugh Carter Donahue - June 14, 2002 12:00 AM

Despite a new U.S. Supreme Court decision affirming the rules responsible for the growing success of telephone and broadband competition in the states, the Federal Communications Commission could push through new broadband policy that would strip state public utility commissions of their authority to help consumers benefit from more choices, better prices and improved services.

Ostensibly designed to spur investment in broadband services, new rules under consideration in four technically complex rule makings at the FCC would re-entrench the dominant regional Bell telephone companies, deprive consumers of choices for high speed data services, and rob citizens of protections they now have for voice services.

Ironically, the change would come just as a number of states are creating competitive environments envisioned by the Telecommunications Act of 1996. In New York three million consumers switched local phone service in response to growing choices. In Michigan, legislation that eliminates red tape on rights of way makes it easier for competitors to install fiber and will produce better services at lower prices. Illinois, Indiana and California, and Pennsylvania are stoking competition with rules tailored to local realities.

The Bells say rule changes are needed to give them adequate financial incentive to invest in broadband, but as the Supreme Court noted on May 13, this claim "founders on fact." BellSouth, in its 2001 annual report, boasts of tripling its DSL customer base. The California Public Utilities Commission says in a filing with the FCC: "[T]he fact that Pacific/SBC has successfully promoted DSL service to customers under the current regulatory environment to the point of outstripping cable modem service makes clear that the current regulatory environment is conducive to, and does not impede investment, in broadband technology ...." Pointing to $55 billion in telecom investment, the Court concludes: "a regulatory scheme that can boast such substantial competitive capital spending over a 4-year period is not easily described as unreasonable."

At issue is the degree to which the Bells can restrict access to their local infrastructure, i.e., loops, switches and other features (in regulatory jargon Unbundled Network Elements or"UNEs") that competitors combine with their own resources to compete with the Bells to provide service to homes and businesses. Recognizing that new competitors could not readily replicate extensive Bell company networks, particularly the "last mile" hookup to every American home and business, which is the most costly and least dynamic network element, Congress required incumbent Bell companies to lease parts of their networks to competitors as a spur to competition. The FCC established the minimum network elements the Bells are required to share and method to determine reasonable rates for leasing those elements; the states are empowered to certify compliance and set specific network access prices.

The FCC is now deciding whether it should parse the rules to allow the Bells to freely choose which elements and at what prices they will lease to rivals for high-speed services. If the Commission so decides, it will effectively diminish the incentives Bell companies have to innovate in serving customers, encourage them to raise prices and destroy the benefits of competition beginning with broadband.

The proposed rules compromise existing voice service as well. The phone network does not discriminate between data and voice traffic, for all communication travels the same way over the phone network. The proposed FCC rules make it impossible for states to monitor voice services without running afoul of wire-tapping laws.

Should the FCC persist in this course, its new rules will increase risks for competitors, undermine attracting new capital for broadband infrastructure, suppress innovation and rob investors of their investments in promised competition. The contemplated changes, the Texas Office of Public Utility Counsel told the FCC, represent "a radical, anti-competitive shift in telecommunications policy from open communications platforms to closed proprietary networks." Texas' concerns echo loudly in the filings of 15 state commissions commenting on the proposed rules.

Noting that competition is developing at different pace in every state, New York counsels FCC against a fiat from Washington. "The analysis to determine which UNEs should be unbundled in a state is fact specific and must consider conditions in each particular state."

Rather than curtailing the states, FCC should embrace the states' honored role as public policy laboratories. For example:

  • The FCC could allow the states significant roles assessing the need for network elements based on the realities of their home markets.

  • The states could test ways to enable consumers to switch local phone service as easily as they now choose long distance providers. Right now, the difficulty of changing providers - it can take six weeks or longer to switch -- is one of the biggest impediments to telecom competition.

  • The states might consider structural changes. Pennsylvania, for one, has considered separating its dominant Bell company into two businesses -- one that sold phone and Internet Service and the other that would lease the network services to all competitors on equal terms.

Congress imposed network access requirements for good reason: it would be
unreasonable and inefficient to ask financial markets to finance an end-to-end competing telecommunications system, entrepreneurs to build it, and marketing channels to sell its services, even on a localized basis. No new competitor could compete with an incumbent that took the better part of a century to do the same thing under the government's regulatory protection using ratepayer money. Without such access, new phone service competitors could not exist, no matter how much more efficient they may be.

Thanks in large measure to some states' hardheaded implementation of the access rules, consumers in a growing number of states are benefiting from more choices and better prices. The Court has upheld those rules; the FCC should maintain them. An FCC decision to alter network access rules for broadband would halt the trend toward competition.

Hugh Carter Donahue, formerly associate director for the Information and Society Program at the Annenberg Public Policy Center of the University of Pennsylvania, is author of "The Battle to Control Broadcast News," and holds a doctoral degree in Communications and Policy Analysis from MIT.

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