TCS Daily

Is the Telecom Law an Ass?

By Duane D. Freese - March 5, 2004 12:00 AM

The D.C. Circuit Court of Appeals dealt a blow both to telephone competition and regulatory certainty with its ruling this week overturning Federal Communications Commission unbundling rules.

Consumers are the big losers in the ruling, if it stands. It basically creates chaos in regulation where a logical system was put in place by saying the FCC and not state regulatory bodies must decide when and what parts of a local phone platform the monopoly Bells must lease to their competitors and the prices for them.

That throws out the work done in many states in setting forward-looking cost-based rates - by methods approved by the Supreme Court -- that had just begun to give consumers choices. More than 19 million customer phone lines have been switched to competitive carriers as a result, finally making the promise of competition from the Telecommunications Act of 1996 a reality to millions of consumers. Now, those consumers risk seeing their choices limited and their bills for phone service climb without any improvement in service. How much more? Tens of billions.

And the money will flow to the regional Bell operating companies, who likely will use it as SBC and Bell South are using their resources now to buy out competitors on other phone platform who might compete with them for telephone service. For any one with any sense of the importance of competition in a free market economy, the $41 billion buy out by Cingular - owned by SBC and Bell South - of AT&T Wireless, the independent spin off of old Ma Bell, AT&T, ought to have set off alarm bells.

Now, the circuit judges' narrow focus could turn that merger from one that makes sense in terms of phone competition to one that threatens it. For monopoly at the local level in telecommunications can leverage monopoly into other realms.

No service is more basic or important than the local phone line. If the Bells stranglehold on those lines - which remains at 85 percent despite recent gains - is not diminished, then they'll be able to offer their own customers bundled cellular, long distance and local services while access charging to death cellular and other long distance competitors. Long distance companies - because of the competition with each other - have to cut deals beneficial to the Bells; the Bells will have no incentive to do anything in reverse.

It's worthwhile to recall that the Bells' lines and systems were built up over a century with government protection as well as massive subsidies from long distance and business customers. Further, the existing Bells inherited their networks from one of the rivals now, AT&T, by government fiat. Since the break up of AT&T in 1984, they've collected $300 billion in access charges set by government to help them provide service because local service was considered so vital.

That's something, though, that the judges, as well as Bell's supporters, have chosen to ignore.

The judges in their ruling miss the whole spirit of the Telecom Act - to promote competition - while staring pointedly at an issue of jurisdiction. Fairness? Justice? Forget it. The judges decided the FCC just couldn't give to state utility commissions, which have dealt with Bell rate cases for most of the last century, the power to determine if competition was real in their jurisdictions. The FCC has to do that all by itself instead.

Well, as Mr. Bumble said, "If the law says that, then the law is an ass." Essentially, the judges would force the FCC to create tribunals for every state and then determine within each of them where and how competition within them competition was impaired or not. It will be far easier for the FCC to simply give in to the big pocket Bells, knowing that most competitors lack the means to stay in business long enough to challenge any of their mistakes.

As it is, the law may not really say that. The judges apparently decided to overlook one relevant section of the Telecom Act, which FCC attorneys belatedly brought to their attention. Section 410(b) of the Communications Act states that the FCC "may confer with any State commission having regulatory jurisdiction ... regarding the relationship between rate structures, accounts, charges, practices, classifications, and regulations of carriers.... The [FCC] is authorized ... to avail itself of such cooperation, services, records, and facilities as may be afforded by any State commission."

If one is looking for a strict reading of the law, that section would seem to give the FCC broad authority to do what makes perfect logical sense - confer and rely on those who have the most background.

The FCC needs to move expeditiously to appeal this ruling to the Supreme Court, which approved its rate setting and now could set a sensible standard by which decisions about the state of local competition can be made. A system for ensuring competition at the local level is as vital as the service itself. Competition -- the key to consumer welfare and economic health -- throughout telecommunications depends upon it.


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