- The Washington Times - Friday, May 18, 2001

Ready or not, telecom reform is back on the congressional agenda. Last week, the House Commerce Committee approved what would be the first significant reform of telecommunications laws since 1996. The good news is that the measure would trim regulatory barriers to deployment of high-speed,or "broadband," Internet connections. The bad news is that as indicated by the close 32-23 vote the measure will likely get bogged down in a Vietnamlike political quagmire and never come out. That may be encouraging for lobbyists and congressional campaign fund-raisers, but not for U.S. consumers.

The measure, sponsored by Louisiana Republican Billy Tauzin and Michigan Democrat John Dingell would among other things ban state or federal regulation of the rates, conditions for or entry into high-speed Internet service; limit the Federal Communications Commission´s power to require telephone companies to provide competitors´ access to network elements used for high-speed data and modify long-distance rules that prohibit Bell companies from providing high-speed data services on a nationwide basis.

These proposals have triggered a firestorm of opposition. Long-distance firms and start-up competitive local exchange carriers (known as "CLECs") are crying bloody murder, arguing that the incumbent local telephone companies are monopolies that need to be tightly controlled. A full-scale PR war has been launched against the Tauzin-Dingell plan, telling (probably bewildered) viewers to oppose granting special favors to the "Bell monopolies".

If this issue were popularity, there would be no contest here. Lately, it has been looking like the Bell companies (SBC, Verizon, Quest and Bell South) have been taking lessons in public relations from the airline industry. It seems everyone has a local telephone "horror story" to tell, from bungled installations to long waits for customer service.

The CLECs, by contrast, are political darlings, seen as Davids to the Bell Goliaths. Increasing the political sympathy factor, they are now financially troubled as a group hit harder than many of the worst dot.coms over the past year.

But such white hat/black hat distinctions rarely make good public policy. Sympathy for the players is no reason to regulate a business. The real question is whether the government restrictions at issue help or hurt consumers.

Opponents of reform make the case that regulation is needed to rein in telephone company monopolies. That claim doesn´t bear close scrutiny. To start with, Bell competitors, despite financial troubles, have a greater share of the local telephone business than commonly thought, around 9 percent. In business markets, the portion captured by competitors is approaching 20 percent. The Bells are still dominant, but not monopolies.

Of more importance, the market for broadband services the only market covered by the congressional proposal is intensely competitive. Telephone companies, cable firms, wireless and satellite providers are all competing to provide service, each using it own facilities. Far from dominating,telephone companies find themselves in the unaccustomed position of challengers. In fact, in the race for the residential market, they are far behind, with about 20 percent of subscribers, compared to cables´ 70 percent or so.

The real danger to consumers isn´t that broadband is a nascent monopoly, but that they won´t get access to broadband services at all. Despite steady growth over the past several years, only a fraction of U.S. households now have high-speed services. Enormous investment is needed to build out the infrastructure to provide it to the rest (some $200 billion, according to the investment firm of Bear, Stearns and Co.). And regulation only makes this more difficult, either by reducing the rewards from that investment or limiting the uses to which it can be put.

Of course, the current congressional proposal is far from perfect. For instance, the current draft would make regulatory relief contingent on industrial policy-style requirements that the broadband network be built out according to a congressionally imposed time line. Such a "whatever is not prohibited is mandatory" approach could distort investment.

In any case, the future of the Tauzin-Dingell proposal is uncertain. It still must go to the full House of Representatives and then face a decidedly unenthusiastic Senate.

The current conventional wisdom is that broadband reform will get bogged down in endless congressional and industry squabbling. The Telecommunications Act of 1996, many remember, took the better part of a decade to enact. So much for Internet Time. Today´s patient consumers deserve better.

James L. Gattuso is vice president for policy at the Competitive Enterprise Institute. He is a former deputy chief of the Federal Communication Commission's Office of Plans and Policy.

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