TCS Daily

FOBs Go to War

By James K. Glassman - March 1, 2004 12:00 AM

In the past few weeks, the Friends of Bell (FOB) have opened up with cannonades from every direction, all aimed -- weirdly enough -- at little old me and other conservatives who believe that the best route to competition in telecommunications is through allowing other companies access, at a reasonable price, to the network that the local Bell telephone giants built as protected and subsidized monopolies.

This battle has been fought before, but with more decorum and intelligence. Eight years ago, after long and serious debate, Congress passed the Telecommunications Act of 1996 with the aim of bringing competition to the part of the telecom system that was still a monopoly: the last mile that connects your home with the greater wired world.

The deal was that the seven (now four) regional Bells would be freed to go into long distance as they unbundled their local loops and leased them to competitive local exchange carriers (CLECs). That plan -- which was based on the successful scheme that required AT&T to open its own network to competitors like Sprint and MCI more than a decade before -- has been working.

Today, the CLECs have signed up 20 million customers that used to belong to the Bells, while the Bells, with offerings in all 50 states, have grabbed 34 million long-distance customers. (By the way, the Bells service those customers mainly by leasing lines from long-distance incumbents.)

But the Bells are unhappy. They object to something called UNE-P (unbundled network elements platform), the regime by which CLECs lease parts of the system. Prices, the Bells contend, are too low. The Federal Communications Commission fought a heated battle over the UNE-P issue last year. In a 3-2 vote, the UNE-P regime was retained.

Meanwhile, Americans continue to adopt broadband -- or high-speed access to the Internet -- at an impressive pace. Available only to businesses, and at high cost, eight years ago, broadband now reaches 91 percent of the nation's zip codes and 99 percent of the population. Today, 24 million homes have it -- even though it's a technology waiting for a killer application -- and perhaps soon finding one in Internet voice (but that's another story).

Back to the Bells and their unhappiness....

Over the past few weeks, several FOBs have opened fire, in a distressingly personal way, on some of the many conservatives who differ with their views on these often-arcane but always contentious matters.

On Feb. 17, Adam Thierer, who is the telecom expert at the Cato Institute, posted "An Open Letter to Pro-Regulation Conservatives" on the Cato website.

That was a provocative -- and, frankly, sophomoric -- title, but it perfectly reflects the contents of the letter, the thrust of which can be seen in this quote:

"In the end, despite the complexity of the issues involved, the debate over telecom policy really comes down to a simple question: Do you trust free markets or government mandates to get this job done?

"Surprisingly, recent editorials or letters penned by conservatives Jim Glassman of the American Enterprise Institute; grassroots activist Grover Norquist, president of Americans for Tax Reform; and constitutional scholar Bruce Fein, have suggested that mandates, not markets, are the solution."

Oh, come off it! The idea that Glassman, Norquist and Fein are really advocates of "Soviet-style micromanagement" (a phrase Thierer uses later in his piece) is foolish beyond belief.

Thierer knows my position very well. We had a telephone monopoly in this country for a century. It's not easy to bring a monopoly into a competitive environment especially when the monopoly owns the major means of access (the last mile) to every home and business in America. Congress -- with the vote of every conservative member -- figured out a reasonable roadmap in 1996. The roadmap is being followed, and it is working -- despite continual attempts by the Bells to tear it up.

Sensible people of the same philosophical persuasion can differ on the details of how to get from here to there. But we all want to get to the same place, and to personalize this issue (Thierer's two-page letter refers to Grover, Bruce and me 23 times) and try to drum us out of the fraternity of "true" conservatives, only obfuscates. But maybe that's the whole idea.

Malcolm Wallop, one of the toughest economic conservatives ever to sit in the U.S. Senate (and perhaps the target of the next FOB missive), provided an excellent response to the specific issues raised by Adam Thierer in an "open response," posted Feb. 27 on the TechCentralStation website. I have little to add to Sen. Wallop's powerful reply -- except to emphasize that Fein, Norquist and I are not loony renegades from Mother Right. In December 2002, as Wallop writes, some 22 "well-respected national and state free-market organizations" urged the FCC to continue to allow CLECs access, at a fair price, to the Bell infrastructure.

It is this access that has driven down prices in competitive markets around the nation, benefiting individuals and small businesses. The Bells liked it better, of course, when they had their monopolies intact. But times have changed, and the Congress should be proud of the liberation up to now.

But one letter was not enough. Eight days after the Thierer epistle, a dozen FOB conservatives wrote directly to Norquist (Fein and I were spared), condemning him for not toeing the line.

In language worthy of a Stalinist cell, the letter stated, "Your continuing advocacy of the pro-regulation position is destructive to the cause of limited government. To the extent your efforts are successful, the effect will be to... stifle individual liberty and economic freedom." What's next? A trial and ritual confession before execution?

Signers of the letter included the presidents of the Progress and Freedom Foundation (probably the leading FOB organization in town), the Pacific Research Institute and the Competitive Enterprise Institute, as well as scholars from the Hoover Institution and the Manhattan Institute.

The irony here is incredible. The FOB letter, according to the Washington Post, "was framed as a response to Norquist's criticism" of a letter from "nine Democratic senators, including Hillary Rodham Clinton (N.Y.) and presidential candidate John F. Kerry (Mass.), who wrote to President Bush on Jan. 16 advocating the creation of a national broadband policy."

The whole concept that Norquist, a conservative leader of the movement to cut taxes and reduce government, has somehow become a turncoat -- or that Norquist makes telecom policy in America -- is absurd.

But it is hardly new. This line of attack -- the idea that certain conservatives manipulate policymakers -- is an FOB staple.

I hate to be self-referential, but consider this passage from a long, largely pointless article in the Washington Monthly in December:

"Glassman certainly has impact. Earlier this year, the Federal Communications Commission considered whether regional Bell companies should continue to fully share their wires with competitors like AT&T -- the position Democrats favored. The tiebreaking vote was cast by a conservative Bush appointee, Kevin Martin. Martin sided with his Democratic colleagues, a surprising position, but one made easier, say observers, by the fact that a few prominent conservative pundits, chief among them Glassman, had taken AT&T's side in the argument."

Debaters know this: When the other side issues ad-hominem attacks it means that it doesn't have good arguments. And ad-hominem is the favorite mathematical formula for the FOB crowd.

Kevin Martin doesn't need cover from me, or from anyone else. Here is a link to Martin's impressive biography. Two highlights: He served as a key aide to Harold Furchtgott-Roth, probably the most free-market-oriented commissioner the FCC has ever seen, and he went down to Florida to fight for the election of George W. Bush after Democrats tried to snatch it away.

Martin doesn't need my help. Nor, by the way, does the Bush Administration in general, which has wisely not entered this debate but has let the Telecom Act of 1996 and the FCC set policy, with the clear aim of bringing true competition to a market that has been dominated by monopoly power, to the detriment of consumer choice, low prices and the spread of technology.

The word "technology" brings me to a third barrage from the FOB arsenal. It comes from the Wall Street Journal editorial page. Yes, conservatives are divided on the issue of how to bring competition to telecom, and the Journal's sympathies (unwisely, I believe) are with the Bells.

Again, there is nothing wrong with such a difference of opinion, but the Journal editorial is not up to its usual standards. First, there's the overblown rhetoric: "Thanks to a lack of White House leadership, and some political skullduggery, the Bush Administration has ended up enforcing what is essentially Al Gore's telecom policy."

In fact, the Telecommunications Act of 1996 was every House and Senate conservative's telecom policy, too. Dick Armey voted for it. Phil Gramm voted for it. So did all free-market conservative legislators. And the FCC and the 50 states, not Al Gore, have been responsible for implementing it.

Far worse is the Journal's erroneous contention that the U.S. trails Japan and some other countries in broadband subscriber penetration because of "the FCC's unbundling requirements, which force [the Bells] to lease the use of their networks to rivals at below-market rates. Consequently, the Bells have been slow to upgrade to fiber."

In fact, the rates are not below market. As for the Bells' being slow to upgrade...Which is a greater spur to investment: a cushy monopoly position, or a tough competitive one? The notion, sold by the FOBs, that, if only we were free from nasty competitors, we would happily upgrade our technology, doesn't jibe either with basic economics or with history.

Studies, by Princeton economist Robert Willig and others, show that the Bells invest more where they face UNE competition than where they don't. That stands to reason. Monopolists don't want to increase supply; they want to reduce it, so prices will rise. That's been an economic tenet forever.

In 2000, Harold A. Shelanski, the chief FCC economist, wrote in the Chicago Legal Forum that the Bells only began deploying DSL (their version of broadband) in late 1996, even though they had the technology for years. Why did they deploy? Because competitors could start offering the service by leasing the Bells' lines. Telecom investment boomed after the passage of the new law: $572 billion was spent over the next five years.

But the part that the Journal really has wrong is the Japan story. The editorialists at the Journal, normally a diligent group, seem to have missed an article in their own newspaper. An article that appeared on Oct. 17, 2003, told how Masayoshi Son brought "High-Speed Internet to a Once-Lagging Nation."

A tiny company called Tokyo Metallic Communications in early 1999 asked the Japanese government to "pry open the market for broadband services." The article continued:

"Tokyo Metallic's request: that market giant NTT be forced to let the smaller rival use its copper-wire phone lines for broadband services using a technology called asymmetric digital subscriber line, or ADSL....

"In August 1999, the telecom ministry acted, ordering NTT to let rivals use its copper-wire network, as well as other facilities needed for ADSL. NTT dragged its feet. Just as the Baby Bells sometimes resisted helping broadband providers in the U.S., NTT was reluctant to give upstarts access to its facilities and lines....

"In December of 2000, Japan's Fair Trade Commission reprimanded NTT, while the telecom ministry pushed it to slash the amount it was charging rivals to use its lines. NTT gave in, and soon afterward, Tokyo Metallic and a handful of other companies -- mostly startups -- launched commercial ADSL services."

In other words, the Japan story is very similar to the U.S. story: the incumbent monopolist didn't want to offer access at fair prices to competitors. When the monopolist was finally forced to provide that access, broadband blossomed. And so it has in the United States, quadrupling already during President Bush's first three years in office and expected to more than double in another five years.

Do enough Americans have broadband? As a believer in free markets and free choices, I am agnostic on that question. It's really up to consumers to decide whether they want to buy a product. Certainly, more consumers would buy broadband if there were a killer app. Perhaps Internet voice, or VOIP, is the answer. We'll see. But we certainly don't need a national broadband policy, dictated by FOB Democrats, to get the "right" penetration levels.

It's hard to understand what the Wall Street Journal and other FOBs are grousing about. The Bells got exactly the national broadband policy they wanted. The FCC specifically exempted their investment in broadband fiber and Internet Protocol technology from the unbundling rules -- and Kevin Martin voted for that exemption.

But, for companies that have been monopolies for so long, competition is no fun. So they won't give up. Rather than battling in markets, they prefer to fight in the courts and the legislatures and in letters that attack dissenters personally.

This debate is too important to degenerate into a pie fight.


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