- The Washington Times - Wednesday, April 25, 2001

Rep. Billy Tauzin is making a fatal mistake regarding the nations telecommunications. In a presentation to the Progress & Freedom Foundation, the powerful Commerce Committee chairman stated clearly and correctly that the primary threat to future economic growth is a continued meltdown in the information technology sector. Since March 2000, stock prices for telecommunications companies have dropped 70 percent, many have gone bankrupt and others are quickly running out of cash. A domino effect has knocked down the profits of the suppliers that serve them.
Mr. Tauzin was also exactly right when he said that a strong rebound in telecommunications requires two things: first, reliable energy supplies and, second, widespread availability of broadband to speed delivery of services from the current-copper crawl pace.
But Mr. Tauzins remedy is all wrong. He thinks the best way to boost broadband is by releasing the regional Bell monopolies from their obligations under the Telecommunications Act of 1996. Such a move would kill competition and innovation, the keys to a rebound in both broadband and the economy as a whole.
What were the obligations? Five years ago, the Bells agreed to open their local loops to competitors. In exchange, the Bells would be able to get into the long-distance market.
Unfortunately, little has changed since 1996. The Bells dragged their feet, and they continue to have a chokehold on the "last mile" of phone line into the home. Some 95 percent of U.S. residences still have a regulated Bell monopoly as their local service provider. And, like all monopolies, the Bells have been raising their local rates and doing little to improve service.
Hope for real competition is rapidly running out. Several months ago one of the largest competitive local exchange carriers (CLEC), Covad Communications, cut back the planned expansion of its national digital subscriber lines (DSL) broadband network. Two weeks ago, another large CLEC, NorthPoint Communications, which is in bankruptcy, ended service to 100,000 customers. Rhythm NetConnections has run out of money. And soon, PSInet, which laid a million miles of fiber optic through 28 countries and 90 metropolitan areas of the United States, could follow suit. As PSInet founder William Schrader says, the "dinosaurs" (as he calls the Bell monopolies) are winning because "deregulation has stopped, and they will become monopolists again because the competition cant compete with monopolists."
Indeed, the monopolists are only getting bigger. Thanks to mergers among themselves, the seven Bells plus non-Bell local giant GTE have become just four companies SBC, Verizon, Bell South and Qwest. And in addition to merging to reduce competition, they have reneged on the promises they made (to win merger approvals) to get into each others territories. Verizon, formed when BellAtlantic merged with Nynex and GTE, announced last month it would slow down an already sluggish expansion into other Bells regions. And SBC says it wont come close to its target set by the Federal Communications Commission when it merged with Ameritech, the Midwest monopoly to enter 30 major-city markets.
Yet, as far as Mr. Tauzin is concerned, it is the Bells that are the victims. So, to make things equal, he would let the Bells get into the most lucrative part of the long distance-market data transmission without having to open up their local loops. He would also release them from their promises to compete with each other.
What will happen if the powerful local Bells get what they want from Mr. Tauzin and Congress? History shows it wont be the expansion of affordable broadband. In the past, the Bells tried to kill the Internet in its crib by putting per-minute charges on local calls made to the Internet Service Providers (ISPs) that connected consumers to the Internet. Just such policies in Europe and Japan have curbed the Internets growth there, to those nations economic detriment. In the United States, brave CLECs stepped up to the plate and gave those ISPs good low-cost service.
The Bells also kept DSL service under wraps for more than a decade, not wanting to divert business from their high-speed, high-cost T1 lines. Only when the upstart CLECs began delivering it to customers at affordable prices did the Bells start to do the same. And now that competition from the upstarts is waning (as the Bells drag their feet on local connections, file lawsuits and renege on agreements to pay their "reciprocal compensation" bills), the Bells are making DSL service less affordable once again. A competitive market would not allow SBC to hike prices for its DSL service 25 percent, as it did last month.
To achieve deregulation, the answer is to break the Bells up not geographically, but functionally, as some states, like Pennsylvania are already trying to do. Each local phone company should be divided into two businesses: wholesale and retail. The wholesale side would sell local service both to its own retail side and to any other company that wanted to purchase that service. Thats how to achieve real competition, to boost quality and push down prices.
Giving in to the Bells demands for a rollback of the Telecommunications Act of 1996 is a prescription for disaster that will throttle the prospects of the New Economy for decades to come.

James Glassman is the host of www.TechCentralStation.com. He also wrote about the telecommunications industry in late December 2000.

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