TCS Daily


Powell Uncertain

By James K. Glassman - November 4, 2002 12:00 AM

Fair or not, the buzz around Washington on Michael Powell is that he's indecisive - overwhelmed by the complexity of his job as chairman of the Federal Communications Commission. Perhaps stung by that widespread criticism, he's on the verge of rushing into a disastrous decision that could cost consumers billions of dollars, turn back the clock on telecom innovation and damage the political prospects of the Bush Administration.

For nearly two years, the administration and Congress have managed to resist lobbying by the four Bell phone companies to protect and extend their monopolies. President Bush has made it clear that competition, not Washington's selection of winners and losers, should shape the economy. So, having failed to convince elected officials to gut the law that seeks to deregulate their business - the Telecommunications Act of 1996 - the Bells have turned to Powell, who may be figuring that he can repair his reputation by giving them what they want.

Powell is becoming the worst sort of out-of-control regulator, adding uncertainty and instability to an industry that needs precisely the opposite. He's set to roll over the traditional authority of the states and introduce the same kind of government-led industrial policy that Republicans campaigned against in the 1980s. If he continues on the present course, the White House will suffer. It's surprising the administration didn't take Powell to the woodshed long ago.

The truth is that the chairman of the FCC does need to take decisive action, but, instead of destroying a law passed overwhelmingly by Congress (including every leading conservative legislator), the chairman needs to reaffirm it. After years of waffling, he should say, loud and clear, that he will enforce the Telecom Act and aggressively defend it in the courts and on the Hill.

After all, the law is finally working - and benefiting consumers and small businesses with lower rates and higher quality through competition. Going into the mid-term elections, the Bush Administration has a success on its hands. The states where reforms have produced the best results are important vote-rich political battlegrounds like Michigan, Ohio, Illinois and New York. The White House would be nuts if it did not exert some not-so-subtle persuasion to divert Powell from taking a reckless and damaging step.

Bush named Powell chairman of the FCC at the tender age of 37. He was an odd pick - except for the fact that he was the son of the Secretary of State. Powell had served as chief of staff to one of the Clinton Administration's leading industrial-policy activists, Joel Klein, assistant attorney for antitrust. While Powell gave speeches suggesting a free-market approach to telecom regulation, he dithered rather than delivered. When Powell took over at the FCC, the Bells had been fighting a long battle against implementation of the sweeping telecom reform law - backed by every congressional conservative in Congress - that established a blueprint to bring competition to local telecom service.

Under the law, the Bells had to make their networks - which had been protected and nurtured by government for a century - available to competitors at reasonable rates under a leasing system, managed by state public-utility commissions, called UNE-P (for "unbundled network elements platform").

In return for opening up, the Bells were allowed to offer long-distance service. The model for the 1996 law was the de-regulation of long distance itself, which had been ordered by a court a decade earlier. The monopolist in that case, AT&T, had to let firms like MCI and Sprint lease its lines; after they built a customer base, the competitors built their own networks. As a result, while local rates have risen, long-distance rates are down 40 percent since 1992 alone

After years of foot-dragging and lawsuits, the Bells now face real competition at the local level - and they hate it. Their latest ploy is to conjure up a crisis by trying to convince politicians that if the law isn't changed, investors won't back the telecommunications industry anymore.

But, as the Economist magazine put it recently, "the crisis seems to dwell mostly in the imagination of [the Bells'] lobbyists. For the first time since the depressed 1930s, the Baby Bells have begun to lose home-phone lines - to competition from wireless, long-distance and cable companies."

Yes, real competition is coming to local telecom and, with it, the usual benefits: better service and lower prices. The latest tally shows that, thanks to UNE-P, competitors had signed up customers for 7.7 million lines. That figure is projected to exceed 10 million by year end. And rates are falling. In Michigan, SBC had to cut the price of local calling by some of its customers by one-third to compete, and, in New York, according to Consumer Reports, consumers have reduced their bills by an average of $13 a month.

Powell needs to act now to establish clarity. Gutting the Telecom Act by interfering with states that are setting reasonable UNE rates will have the opposite effect. It will kill competition in its infancy by locking in the Bells' huge market share. It will lead to many more years of court cases, political wrangling and uncertainty.

In fact, Powell's indecision over the past year has had one good result. As time has passed, the value of competition in telecom has become obvious as rates are falling and quality is rising. He's got an easy choice now, and he should make it forcefully: Back the Telecom Act. Let competition determine the winners.

 

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