TCS Daily

Meet the Real 'Joe Millionaire'

By Duane D. Freese - January 7, 2003 12:00 AM

Is Federal Communications Commission Chairman Michael Powell taking his cues from Fox TV?

This week the naughty network delivers a new twist on the reality dating and wooing game. The show, "Joe Millionaire," essentially cons a score of beautiful women into seeking the affections of a $19,000 a year construction worker they are led to believe is worth $50 million. The fun: To see how the last woman duped after 20 others are dumped feels when she discovers the truth.

If reports from the Wall Street Journal and Reuters are correct, Powell is having some naughty thoughts of his own. He is thinking of conning telecommunications consumers and investors that telecommunications competition will thrive despite pulling the rug out from under local competition.

Local telecom competition has been thriving lately, providing consumers huge benefits. The giant Bell company SBC, for example, has cut consumer phone rates 33 percent in Michigan, and lowered and simplified rates in Illinois, California and Ohio to meet new competition. In New York, Verizon has done much the same. Furthermore, the competition has led the Bells to bundle together services in cost-saving ways.

All of this has come about in large measure because state utility commissions, upset by the lack of local competition, looked at the rates the Bells were charging competitors to lease their networks and began applying the FCC's forward looking pricing requirements to lower those charges.

As could be expected, the Bells screamed. But, in a noteworthy detail, none of them took advantage of the lower rates they complained about to enter a brother Bells' territory.

Make no mistake about this: If the FCC now bows to their screams rather than looks at the Bells' actions, competition will diminish and the Bells will seek to further entrench their monopolies.

The requirement that the Bells provide wholesale leasing of their network platform to competitors - so-called UNE-P - is the only reasonable way for most competitors to enter local phone markets now. It is the only way they can generate the capital to ultimately build out a competing network they can fully control themselves.

Without that mode of entry, in all likelihood, a new round of consolidation among telecommunications providers will ensue, with the Bells swallowing up WorldCom, Sprint and possibly even AT&T. Prices will rise. Investment in innovative technology will diminish. And investors and consumers - led to believe by the Telecommunications Act of 1996 that competition was on the way to spur improvements in both service and pricing - will have been duped.

It doesn't take a genius to see that outcome. Just some common, nonlawyerly, sense.

Think about it:

  • The four remaining Bell operating companies continue to control a $300 billion communications network with direct contact to more than 100 million homes.

  • They've received FCC and state permission to provide long distance service beginning this year - aided by wholesale leasing of long distance company lines at steep 70 percent discounts.

  • As Eduardo Menasce, president of Verizon Enterprise Solutions Group, admitted to Network World Fusion recently, "It's much easier (for us) to go after long-distance. It's less capital intensive to move from local to long-distance than the other way around."

  • In addition, while computerization means it takes only 15 minutes for a Bell to switch another company's long distance customer to its service, the antiquated switching in the local loop means a consumer seeking to switch to a competitor of the Bells can have to wait weeks and even months.

  • The three largest Bells - SBC, Bell South and Verizon - have wireless stakes that make the bundling of local, long distance and wireless services for consumer simple.

  • The rejection of the Echostar-Hughes merger means that neither satellite company is in a position to compete with the Bells by providing phone or high-speed Internet service, so they will be ripe to become Bell partners giving them a ready video component.

  • The Bells are putting money into new technology such as Wi-Fi that could threaten their monopoly dominance in local and high-speed service. With the FCC having delayed decisions on spectrum issues, the Bells, once local competition issues are handled, will be in position to thwart new entrants in that realm.

In short, any decision that short circuits local competition now threatens to remonopolize telecommunications. At best it amounts to asserting a duopoly - with cable companies becoming the only realistic source for local competition with the Bells. And such an outcome would amount to the federal government committing a fraud.

For when Congress passed the Telecommunications Act of 1996, it induced investors to pour tens of billions of dollars into new telecommunications' ventures on the promise that competition would be enforced throughout the telecommunications arena, not just long distance, as had been the case since the break up of AT&T in 1984.

The key to the deal struck then was that the local phone loop would be opened to competitors, in return for which the Bells would be allowed to get into long distance and other services.

It's taken years of litigation and education of state public utility commissions to finally get local competition off the ground, with 80 commissioners from 34 states urging the FCC not to upset their hard work.

The Bells are now into long distance. If the FCC eliminates the means for competitors to enter their local markets, it will be complicit in having duped investors into dumping billions into telecommunications with no chance of winning.

And Michael Powell will earn the title "Joe Millionaire," con man of the information age.

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