- The Washington Times - Wednesday, February 19, 2003

It's finally show time at the Federal Communications Commission. After much delay, the FCC soon will decide whether broadband services will be deregulated and the extent to which telecommunications companies must continue sharing their networks with competitors.
The agency's actions will determine whether the depressed telecommunications and high-tech sectors will get a deregulatory shot in the arm. Or whether, instead, the current commission, with a chairman and four commissioners selected by President Bush, will leave in place the investment-stifling "managed competition" regime concocted by the Clinton-appointed FCC.
The existing excessive regulations are not solely responsible for the industry's woes, with more than 500,000 lost jobs, 60 bankruptcies, and nearly $2 trillion in market valuation losses since 2000. But they have contributed to the downturn.
If the agency now takes a different path, and adopts what I call a Dynamic Deregulatory Vision, it can help spur a telecom and high-tech recovery that will benefit the overall economy.
How will we know if the FCC truly has embarked on a new course after the dust settles? The agency may make hundreds of discrete decisions in the pending proceedings. But to keep your eye on the big picture, here is a scorecard for assessing whether the commission opts for the dynamic deregulatory vision or the managed competition one.
Sharing should not be required for new fiber or other non-copper networks. In the Telecommunications Act of 1996, Congress required the FCC to devise rules that allow new entrants shared access to pieces of the local telephone networks of incumbent carriers like Verizon. But the statute provides that the commission may mandate such facilities sharing only if the new entrants are "impaired" from providing the network elements themselves. The FCC has exercised its discretion by requiring unlimited sharing of the incumbent's entire local network at below-market prices.
Notwithstanding rebukes by both the Supreme Court and a federal appeals court that the unrestricted sharing regime is unlawful, it remains in place. Mandatory facilities sharing at below-market prices deters new investment by the incumbents and new entrants alike. The incumbents are discouraged from investing because any competitive advantage derived from new facilities will be dissipated by the sharing requirement. And new entrants don't build their own facilities because it makes economic sense to share the incumbents' networks without assuming the investment risks.
One can argue about the degree to which the new entrants are impaired from competing with incumbents for voice services without access to the incumbents' legacy copper networks built many years ago to carry narrowband traffic. But there should be little argument that new competitors are no more impaired than the incumbents' with regard to installing expensive new fiber-optic lines or other new technologies. These new technologies, which almost always would be installed to provide broadband services, should be removed from the sharing requirements.
Regardless of technology, facilities used to provide broadband services should be deregulated. The commission's rules even require incumbent telephone companies to share facilities used to provide their broadband offerings (the weirdly named "DSL"). This despite the fact that broadband constitutes a new market, with cable operators garnering about two-thirds of the subscribers. Indeed, the commission is considering whether to impose the telephone company-type regulations on cable operators.
The commission should deregulate all broadband services, regardless of the technology platform used to deliver the service. Several times the commission has determined that the broadband market is likely to continue to be competitive, with cable and telephone companies battling, and wireless and satellite operators, and perhaps others, increasingly becoming marketplace forces. While deregulation of voice telephone services may be premature, the commission would stimulate much new investment by immediately establishing a uniform deregulatory regime for all broadband service providers.
Switching should be removed promptly from the sharing regime. The evidence shows that new entrants are not impaired from providing their own network switches. It is much less costly to install switches than the "last mile" loops that carry traffic to individual homes and businesses from the switch locations. New entrants already have installed 1,300 voice switches and 1,700 data switches, yet the FCC continues to require switches to be shared at below-market prices.
The new entrants complain that in many areas they may not secure enough customers to economically justify installing their own switches. But the appeals court already has rejected the agency's reliance on cost disparities such as this that are simply attributable to scale economies. The FCC should promptly remove switching from sharing requirement.
Interoffice facilities should be removed from the sharing requirement. Interoffice transport typically involves high-capacity fiber lines that connect the local switches. Remember reading about the zillions of miles of fiber laid by the new entrants during the boom years of the ballyhooed fiber glut? That fiber wasn't laid to the homes and businesses where it will be needed to carry the next generation broadband services. Much of it was installed for transport between switching offices. Like switching, this interoffice transport can be competitively supplied and should be removed from the sharing requirement.
A presumptive sunset regime should be established for removing copper loops from sharing.
The parts of the incumbents' networks without access to which the new entrants are most impaired are the "last mile" copper loops. It is much more costly to duplicate local loops than it is to acquire switches and interoffice facilities. The commission should not "flash cut" deregulate, but rather establish a presumptive deregulatory sunset several years out. In this way, the new entrants will have an opportunity to show they still need access to these loops before the sharing requirement is eliminated.
The FCC should preempt states from imposing excessive sharing. The majority of state public utility commissions are beseeching the FCC to allow them to impose sharing mandates that exceed the federal requirements. The 1996 Act's framers, understanding the reality of modern integrated networks that respect no state boundaries, saw the need for a national telecommunications policy. The Supreme Court already has held the FCC has the ultimate authority to define the scope of the incumbents' obligations. The commission should seek state input, but reject the idea it should turn over communications policy to 50 independent state agencies.
Make no mistake. It is no exaggeration to say this particular FCC's legacy largely will be determined by its actions in the next few weeks. If it opts for the Dynamic Deregulation Vision, investment in advanced telecommunications facilities will be stimulated, innovation in new services will be spurred, competition that is sustainable will be strengthened, and America's consumers will be the beneficiaries.

Randolph J. May is senior fellow and director of communications policy studies at the Progress and Freedom Foundation. The views expressed are his own.


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