TCS Daily

Staying The Course

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

After "six years of litigation, frustration and confrontation," telecommunications competition is finally taking off, AT&T Chairman C. Michael Armstrong said on Tuesday in an upbeat message about the future of telecommunications competition.

His key concern: that Congress and regulators give it a chance to flourish.

It was a theme repeated later by U.S. Rep. Charles W. "Chip" Pickering, R-Miss., at the end of the conference sponsored by the American Enterprise Institute on the future of telecommunication's regulation.

"The good news is that we have something today that we haven't had for the past six years: We have real examples of successful local competition," Armstrong told a standing room crowd.

He cited the growth of competition in New York, Ohio, Indiana, Illinois and Michigan, a state where "we (AT&T) signed up more than 100,000 customers" since starting local service there in February.

What is making this competition possible, Armstrong said, is that states have gotten the pricing for leasing of the regional Bell telephone companies' local facilities correct. Beginning six months ago when New York slashed rates charged by the Bells for so-called unbundled network elements (UNE) to competitors, such as AT&T, competition there has taken off, Armstrong noted. And he said that AT&T would begin local operations in California by the fall now that its public utility commission has cut the Bell's wholesale UNE charges by 40%.

Armstrong argues that the cutting of those wholesale rates to allow competitors into local markets was what was called for under the Telecommunications Act of 1996. It is something, he said, the Bells agreed to do in exchange for their entering the long distance market once competition was in place. But, he said, the Bells haven't held up their end of the bargain.

Such leasing of unbundled elements is the only way for competitors to first enter the local market, Armstrong argued. He said AT&T is aware of that because it had to do the same in long distance service when Sprint, MCI and other competitors started. AT&T's breakup in 1984 created the seven regional Bell operating companies -- later merged into four -- that are contesting similar arrangements for access to their systems.

The decision in early May by the Supreme Court upholding the Federal Communication Commission's methodology for setting prices for those network elements confirmed the validity of the Telecom act and the state actions, Armstrong said.

Unfortunately, he said, the period of certainty created by that decision - which according to Armstrong, some cynics call "The Golden Age of Competition - lasted only two weeks. Then the District of Columbia Circuit Court of Appeals ruled against the FCC on its rules requiring the Bells to share their voice lines into homes and businesses so other telecom companies could provide high-speed digital subscriber line services on the same line.

"So today we finally have a clear pricing standard, but now there are new questions about which facilities the standard applies to," Armstrong said. "It's enough to make investors run for the exits. And they will keep running until we have a strong and unambiguous commitment to competition."

He called on the FCC and legislators, though, to stay the course, and "let the Telecom Act and the states do their work."

"To change course now would place a freeze on local competition that we might not see lifted again in our lifetimes," he concluded. "But if we have the political courage to do no harm, to let the Telecom Act stand and continue to work as it is working now, America has an unequaled opportunity. We will have a competitive local telecommunications market for the first time in nearly a century."

'Successful Market Strategies'

Others at the conference disagreed with Armstrong's assessment.

Robert W. Crandall of the Brookings Institution and a former member of the FCC, argued that the Telecom Act wasn't producing competition but only more regulation.

He noted that in the first six years after "deregulation" that price for local telephone service had shown an average rate of decline half that for railroads and about fifth less than for airlines. He noted that local competition was foundering because competitive local exchange carriers (CLECs) that challenge the Bells' predominance "have not identified successful market strategies."

"It is not clear that any CLEC can survive simply offering services now available from incumbents," he argued. Furthermore, he said that only "platform competition" - that from cellular phones, satellite, and cable - "involving new or expanded services" has any real chance for success.

And in a shot at Armstrong, Crandall wondered at Armstrong's criticism of the Bells in light of the likelihood that "AT&T long distance is likely to be absorbed by one of the Bells" some day.

Spectrum Issues

Speaking on the issue of wireless competition, Gregory L. Rosston, deputy director of the Stanford Institute for Economic Policy at Stanford University, said that first the FCC and Congress have to find a way through the thicket of those who believe spectrum through which wireless works should be sold as a property right and those who want to reserve much of it as a commons for everyone's use.

"The goal is to use spectrum efficiently," he said. But disputes about who gets what, when and how have yet to be settled.

There is a shortage of spectrum to satisfy cellular phone companies, in part created by Congress in 1996 giving broadcasters extra spectrum through at least 2006 for the long delayed transition to HDTV. Many members in Congress now hope to postpone the FCC auction of June 19th for leasing of part of that spectrum to other users early. They say there is no way of knowing when the broadcasters will vacate it.

Until those spectrum issues are resolved, the potential competition to wireline phone and cable lines from wireless venues is limited.

In his speech, Pickering cited spectrum as one issue that needed to be rectified. Questioned later, he said that he believed the FCC would postpone the auction until January, giving Congress time to come up with a solution.

The former chief of staff for Senate Majority Leader Trent Lott - and a key player in getting negotiations on the Telecom act rolling prior to his running for the House in 1996 - said the act was doing its work. Competition, he argued, was emerging as RBOCs (Bell companies) have won approval to enter long distance in 13 states and would likely have it in half the states by mid 2003.

The key to pushing forward this competition, though, is to not change the rules.

He said he was pleased to hear Armstrong say that AT&T will enter California this fall. "That state took a pro-competitive position" by lowering the UNE rates SBC affiliate PacBell was charging competitors there.

Some legislative measures in Congress, he said, would "pre-empt such state regulation" that allow the forces of competition to emerge.

That's why, Pickering said, that it was "absolutely critical" that the wholesale changes proposed to the Telecom Act under the Tauzin-Dingell passed in the House in March not happen. There is significant opposition to the bill in the Senate.

He said that all the legislative fury over legislation now is mostly an attempt to influence the FCC. But he called on the FCC make sure that it kept "the bird of competition" alive.

Pickering noted that the FCC would be able to review the rules for pricing and unbundling of lines for competition next year as part of its review to make sure the act is achieving its goal. And that any changes it proposes in rules should have a long lead-time so that participants can adjust.

Similarly, while Pickering said the Bush administration should take the lead on broadband strategy, it needs to develop a policy "without creating another piece of litigation and uncertainty."

Or as Armstrong said, don't change course -- promote competition.



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