FCC Order Will Fail to Open the Telecom Market

The federal government’s latest attempt to "open" the telecom market would be laughable were it not so ruinous. Among other things, the order issued on Aug. 21 by the Federal Communications Commission (FCC), comprising an astonishing 576 pages, continues to require incumbent local telephone companies such as SBC and Verizon to provide virtually unlimited network access to competitors at below-cost rates. This will only exacerbate the investment disincentives already plaguing America’s telecom industry.

Perpetuating this "common-carrier" regulatory model has twice failed constitutional muster and consistently fallen short of its goal of promoting competition. So complex is the rate-making formula that only a handful of telecom experts the world over — undoubtedly lawyers all — even comprehend it.

The forced-access regime ignores the ferocious competition posed by wireless telephony, and worsens the very market conditions the FCC majority presumes to rectify. As with all welfare programs, the network subsidies actually dissuade recipients from establishing the independent facilities that would constitute meaningful wireline competition. Moreover, the incumbent carriers are robbed of revenue that could otherwise be invested in network upgrades and telecom R&D.

Broadband ranks among the biggest losers. Local telephone service providers are too strapped for cash to invest in fiber-optic line deployment. Adding insult to injury, Congress and state legislatures demanding broadband expansion are taxing the industry to create universal service.

Such policy blunders are all the more tragic in light of the potentially awesome advances in digital technology. Millions more Americans could avail themselves of telecom marvels were it not for so obsolete a regulatory regime.

Wireless technologies popular in Europe and Asia, for example, are simply unavailable to millions of American consumers because the FCC and Congress refuse to release their 1950s-era regulatory chokehold on the broadcast spectrum. Notwithstanding the advent of cable and satellite, through which 90 percent of U.S. households now receive their television signals, Washington continues to hoard the spectrum as if only three networks served the nation. Limits on licenses are applied even before new technology is market-tested.

Regulatory struggles over the broadcast spectrum and other issues delayed cellular telephony by at least a decade, while architects of ultra-wide bandwidth applications have waited even longer. Few entrepreneurs are able or willing to endure such costly obstacles. (In response to pleas for reform, the FCC agreed earlier this year to appoint a task force to study spectrum allocation.)

The economic impact of thwarted technology is incalculable. The manufacture of parts for new products and the thousands of jobs that would otherwise be created are forsaken. New tools to increase knowledge, productivity and convenience, necessary elements to improved living standards, go undeveloped. And a multitude of high-tech services upon which our national wealth depends are unrealized.

Less tangible, but no less costly, are the opportunities destroyed by regulatory obsolescence. The cellular telephone industry, for example, has been forced to reconfigure existing technology to comply with federal specs for enhanced 9-1-1 service, number portability and services to the hearing-impaired — all of which could be provided better, cheaper and faster through private initiative. The cost inflation of such mandates detracts from the resources available to develop potentially more promising technologies.

Washington’s regulatory rein directly conflicts with the increased flexibility offered by technological advances. Digital signals greatly improve transmission speeds and user mobility. Whether via Wi-Fi, a router, or other means, consumers increasingly can access the Internet — for voice or data — without a wireline. And yet the regulatory focus remains stubbornly fixed on technologies that date back a century.

A portion of blame rests with industry old-timers who have every incentive to keep competitors at bay by raising barriers to market entry. AT&T, for example, has fought long and hard to prevent the so-called Baby Bells from entering the long-distance market — and thus moving into broadband. Cable and cellular firms likewise have had to deal with the hostility of telecom’s older giants, who were hoping to stave off competition through regulation.

Relief from this regulatory miasma isn’t difficult to design. Congress need only sunset existing telecom regulation and declare the market open on a date certain. Lawmakers also should eliminate the corporate welfare that currently skews R&D decisions, and marginalize FCC control over spectrum allocation.

Of course, it will be far more difficult to summon the political will to dismantle the regulatory machine. Thousands of bureaucrats, lobbyists and lawyers are heavily invested in maintaining the current system. But as America’s telecom pioneers have repeatedly taught the world, we can do whatever we imagine.

It’s time for Congress to catch up with this vision and remove government barriers to progress.

Diane Katz is director of science, environment and technology policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. She has recently written about telecom regulation by the Michigan Public Service Commission.