TCS Daily

Dictating Double Standards

By Bruce Fein - April 23, 2003 12:00 AM

House Energy and Commerce Committee Chairman, w. J. "Billy" Tauzin's federalism arabesque pointing towards States' rights on energy and towards a uniform national policy on local phone service is reminiscent of philosopher Sam Johnson's dog walking on its hinder legs: "It is not done well; but you are surprised to find it done at all." Chairman Tauzin's philosophical awkwardness is compounded because his current craving for federal preemption of States' rights in transitioning from monopoly to competitive local exchange service wars with his own words to the opposite effect trumpeted a few years ago. Of course, as President Abraham Lincoln advised, a man who does not grow wiser by the day is a fool. But the Chairman has offered no convincing explanation for his telecommunications somersault.

On February 20, the Federal Communications Commission by a narrow 3-2 margin voted to retain a federal-state regulatory partnership in deregulating local phone service. Congress itself had championed the same in the Telecommunications Act of 1996, landmark legislation that ended government ordained monopolies for Baby Bell companies over local exchange service. Thus, the act declares that the F.C.C., in establishing a floor for unbundling the local networks of incumbent monopolists for lease by competitive local exchange carriers (CLECs), shall not preclude state utility commissions from going beyond the floor in prescribing additional access obligations in furtherance of incubating a competitive environment.

The act recognized that competition for local exchange service would vary from state to state. Thus, the unbundling obligations of incumbent local exchange carrier monopolists (ILECs) that would prove most conducive to fathering rival CLECs would mirror those variations. The law also shrewdly understood that the science of government is the science of experiment. At present, no would-be Platonic Guardians know with tolerable certainty what duration and configuration of unbundling obligations would most efficaciously and fairly usher in genuine competition for local exchange service. Then, local exchange regulation can safely sunset without risking a spiraling in consumer and small business prices and a return to lethargic monopoly service. Trial and error in 50 State telecommunications regulatory laboratories is the most enlightened approach for discovering regulatory truths about jump starting CLECs in monopoly environments.

In addition, our constitutional dispensation presumptively favors endowing States with autonomous powers. It teaches the arts of self-government to those without a presence or voice in the nation's capitol. Our democratic culture is thus strengthened and enriched. Only a persuasive reason for thinking States are ill-equipped to address a problem, (e.g., civil rights during Jim Crow) should prompt Congress to preemptive action.

Chairman Tauzin proselytizes those precepts when electricity regulation is at issue and his Louisiana constituents might be imperiled by federal edicts of the Federal Energy Regulatory Commission (FERC). In a January 14, 2002 letter to the Chairman of FERC, Patrick Wood, III, Tauzin voiced concern over FERC's November 20 order revoking the market-based rate authority of three utilities who were applying to form regional transmission organizations (RTOs): "We [including Congressman Richard Burr] are aware that the regulatory authorities of low-cost States, including our home States of Louisiana and North Carolina, have raised significant concerns over how the Commission's direction on RTOs will affect their consumers." Tauzin specifically asked Chairman Wood to respond to the following question: "As you know, the Louisiana Public Service Commission issued a show cause order to Entergy and others about why they should be allowed to join an RTO. What have you done to resolve the concerns of State regulators in Louisiana and other States about impacts on retail customers from utility participation in RTOs?" And Chairman Tauzin recently secured passage in the House of Representatives last March 28 of a bill that would handcuff FERC's power to dictate the architecture and membership of RTOs.

Mr. Tauzin's flip-flop to oppose federalism in telecommunications might be justified if there were evidence that the F.C.C.-State regulatory partnerships had proven counterproductive in making local phone service more competitive. But the evidence speaks the opposite. Enterprising CLECs have attracted 10 million subscribers. Prices for local phone service have plunged, saving consumers and small businesses billions. Innovation and facilities investment have not flagged, as newcomers have expended more than $75 billion in constructing networks and network elements where economically efficient. The budding CLEC competition has spurred monopoly ILECs to discount prices for customers who have fled to win back their patronage.

The Baby Bells have complained that below-cost pricing of their unbundled network elements (UNEs) compelled under the current regulatory partnership scheme provides an unfair and artificial advantage for CLECs. But the United States Supreme Court has denied that the UNE prices are confiscatory. Moreover, common costs in providing a menu of telecommunications services enable Baby Bell accountants to manufacture below-cost evidence. In addition, if UNE rates subsidized newcomers in local phone markets, then it would be expected that Baby Bells would be poaching en masse in each other's service areas. The Baby Bells, however, are largely sticking to home markets for local phone service.

In sum, neither Chairman Tauzin nor fellow critics of the F.C.C.'s February 20 order have articulated convincing reasons for shipwrecking the enlightened federalism that has dented monopolies and monopoly prices for local phone service.

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