Telecom Act Generally Worked, Policymakers Say

The Act’s goal of opening Bell-dominated local exchanges to vigorous competition from long distance firms such as AT&T and MCI was “improbable and in fact didn’t occur,” said Reed Hundt, who carried out the law as FCC chairman in the last 1990s. Among hindrances were “regulatory policy flip-flops in 2001 and 2002” and “strategic blunders by AT&T, corruption at MCI and wise moves at SBC and Bell Atlantic,” he said, referring to the predecessors of the current AT&T and Verizon. But Congress’ idea that the market would move toward “equilibrium,” with long distance companies and the Bells sharing similar portions of the market, never was very feasible, Hundt said.

The Act made many improvements, such as in universal service and interconnection, Hundt said. Long distance firms and CLECs did compete successfully for corporate customers “and drove prices way down for American business,” he said. Overall the Act “helped firms create value for shareholders, helped competitors transfer much value to consumers and greatly stimulated productivity gains,” he said. There’s “no need for a sweeping overhaul” of communications law, Hundt said: “A new law would delay many issues from being resolved [and] will not necessarily produce clearer guidance than the FCC, in consultation with Congress.”

GWU Prof. Gerald Brock, a former FCC Common Carrier Bureau chief, said “local competition has not worked as well as the optimists expected.” It was harder than expected to rearrange telecom plants and set up facilities-based competition “and the arrangement for unbundled network elements has had an extremely tortured legal history,” he said. “Competition has been mixed but using the interconnection part of it has worked reasonably well.” What remains to do are mainly Internet issues, he said. For example, VoIP now has “no guaranteed right to interconnect” to public networks, he said.

The Act grew out of 2 trends, Brock said: (1) Local competition’s fledgling growth, which was hindered by Bell domination of the local loop. (2) Bells’ desire to free themselves of oversight by U.S. Dist. Judge Harold Greene, who gained that power through the AT&T divestiture. The plan was a trade-off: The Bells would escape the divestiture decree’s ban against their offering long distance service, and they would open their local exchanges to competition.

Asked by moderator and telecom attorney Richard Wiley if the next Act would be briefer and aimed mainly at technology neutrality and barriers to entry, Brock said: “I don’t think there’s any chance of that. There are enough people in this room to block it.” Brock was referring to the broad representation in the audience of Washington telecom advocates. “This is a complex industry and even a simple concept like network neutrality becomes controversial,” Brock said.

Industry participants on a later panel spoke even more harshly of local competition rules spawned by the Telecom Act, saying UNE-P especially discouraged investment in facilities-based companies. “The ‘96 Act has distorted the industry with less sustainable competition than might have resulted from a different [regulatory] regime,” said Broadwing Communications chief regulatory officer Larry Strickling, a former FCC Common Carrier Bureau chief.

Strickling said building Bell systems for sharing UNE platforms with competitors was “a huge drain of dollars that could have been spent on building new facilities,” Strickling said. To enter the long distance market, the Bells had to prove their local markets were competitive, so they spent money making UNE-P available, he said. Whatever one’s views on Bell entry, it seems irrational to emphasize UNE-P when nearly everyone knew the platform eventually would go away, said Strickling, who has spent much of his recent career on the competitive side. “The unbundled platform was a creation of the Act and the regulatory structure,” he said. It would have been simpler to focus on what is needed to access Bell loops, he said.

“The greatest story never told” is the Telecom Act’s effect on cable, said Comcast Vp Joe Waz. UNE-P also discouraged cable from investing, he said. A “lesson learned” is “most forced sharing of network facilities can be counter productive,” Waz said: “When the government gave local telecom entrants the ability to access Bell facilities at less than market rates, it killed not only Bell incentives to open their facilities but also incentives for new entrants like cable to build competing facilities.”

Verizon Senior Vp John Thorne blamed Hundt for “adulterating” the Telecom Act’s potential. “Even CLECs were victimized” by the regulatory scheme the FCC adopted under Hundt, he said. As a result of FCC competition rules, the telecom industry lost productivity, market capitalization and investment, he said. “Hardest hit were the makers of telecom equipment, in particular, those betting on a broadband future,” he said. Thorne said implementation of the ‘96 Act offers 2 lessons: “The first is that legal prohibitions on entry, no matter how fevered the dreams of regulators, are absolute poison for the deployment of technologies and the development of markets. The second… is that respect for property rights encourages investment.”