- The Washington Times - Monday, December 13, 2004

If a telephone installer told you there would be an eight-year wait to be connected, you would likely seek a different phone service. And in today’s world, you could find several. Yet the Federal Communications Commission has failed every attempt in the last eight years to issue telephone competition rules that pass judicial muster. Each time the regulations have been rejected as too regulatory, in violation of the landmark 1996 Telecommunications.

On Wednesday, in response to the most recent judicial reversal, the FCC is to vote again on the rules governing how much incumbent telephone companies like Verizon must share their facilities with competitors. The word is the FCC again, for the most part, will not abandon a vision of static regulated competition that assumes a monopoly where none exists.

Today we receive many alternative service offers by wireline providers, wireless companies, and increasingly from cable companies and Voice over Internet Protocol (VoIP) providers. In this fast-changing environment, driven by incessant technological innovation, the commission has a chance to embrace market-oriented, dynamic deregulation.

Importantly, the commission’s overly regulatory network-sharing mandates, which require that incumbents share virtually their entire local network with competitors at below-market rates, have substantial adverse economic effects. Because access to incumbents’ networks costs less for many new entrants than building new facilities, these competitors forgo such investment. Incumbents are deterred from investing in new facilities when they know they must turn around and share them with competitors at below-market rates.

According to an October 2004 study by the Chamber of Commerce, between March 2000 and July 2004, telecommunications services investment fell from $1.1 billion to $375 billion, a decline of 67 percent. From March 2001 to May 2004, the telecom services industry lost 380,000 jobs.

The same report estimates reforming the FCC’s rules could generate $58 billion in new capital investment and add $167 billion in gross domestic product growth in the next five years.

The current managed competition regime based on regulatory arbitrage no longer makes sense when we use the airwaves and high-speed Internet connections to make low-cost voice calls. By the end of 2006, the Yankee Group, a leading telecom analysis firm, predicts customers in more than half of all cable households will also be offered phone service. The same firm reports that by the end of 2002, average cell phone minutes used had surpassed the average per-person household wireline minutes of use. The FCC itself estimates 6 percent of homes have cut their phone wires and now rely only on wireless service. IDC, another telecom analyst firm, predicts that by 2007 wireless-only households could reach 10 percent. Moreover, the Telecommunications Industry Association reports that at the end of 2003 there already were about 4 million VoIP lines, expected to surpass 19 million by the end of 2007.

In anticipation of the FCC’s forthcoming action, there are several benchmarks the FCC should meet for its rules to be considered deregulatory. It must finish the job it began last year by completely freeing new broadband facilities from network-sharing obligations. Local switching equipment and high-capacity loops and transport facilities, which generally can be supplied economically on a competitive basis, should be removed promptly from network-sharing requirements.

Finally, in light of the tenacity throughout the sharing regime of those who benefit from below-market pricing, the commission must give detailed directions to ensure the sharing requirements are relaxed promptly.

In sum, continuing overly expansive network-sharing rules will inhibit investment by both incumbent and telecom providers in new facilities and retard development of long-term sustainable competition. Therefore, it will harm all consumers who would benefit from new investment and facilities-based competition. And, given previous judicial reversals of FCC refusal to pare rules, such a position would show disrespect for the rule of law.

Every day now, more American residential and business consumers subscribe to new wireless, cable, and Internet telephony services. It’s past time for the FCC’s telecom regulations to catch up with current marketplace realities.

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

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