Telecom Deregulation: A Phoenix from the Ashes?

By Michael M. Roberts

Sequence: Volume 30, Number 1

Release Date: January/February 1995

Two years of hard work went up in smoke in the last days of the 103rd
Congress when the Senate's major telecommunications deregulation bill--
S.1822--failed to pass.

As the partisan rhetoric of a midterm election fades and Republicans
savor their majority positions in both houses of Congress, stakeholders
in this highly important but complex legislation are regrouping. Service
providers, lawmakers, regulators, and consumers each have unique
perspectives that must be melded together to produce a successful bill.
Each group has numerous subconstituencies that must be brought to a
consensus position. Perhaps the most important, progress in digital and
opto-electronic technology--the principal driver of change in
telecommunications--waits for no one.

There are four areas in which debate will shortly reopen in the newly
organized 104th Congress: competition, convergence, subsidy, and
transition. Let's take a look at likely developments.


Frustrated by delays at the federal level, telephone and cable companies
have increasingly shifted their attention to local jurisdictions. State
regulators are seizing the initiative from their brethren in Washington,
frequently in innovative ways. In several states, agreements to
deregulate local rates have been accompanied by no-cost connections to
schools and libraries. The issue is no longer whether carriers and
providers from the old analog world of cable television and voice
telephony may enter each other's markets, but rather what remaining body
of regulatory protection should be left in place.

An idea surfaced last summer by Republican majority leader Bob Dole, and
initially considered heretical and politically infeasible, is steadily
gaining ground. The new scheme proposes that telecommunications
regulation be essentially eliminated, leaving companies subject to the
same anti-trust and restraint of trade statutes which cover other
industries. With anti-regulation fever very much in fashion these days,
there will probably be a substantial "rounding down" of regulatory
provisions in the bills that are considered in the new Congress.


One of the biggest of the mixed metaphors in recent information age hype
has been the emphasis on building the information superhighway, which
implies that the great challenge is the laying of fiber-optic cable by
way of analogy to concrete for freeways. With several million miles of
fiber already in the ground in the United States, and more being laid
all the time, the real challenge lies with the digital hardware and
software that will capture, process, store, and deliver voice, data, and
video over the several digital pathways that will be available to homes
and businesses. Computer industry representatives are aggressively
lobbying Congress to leave the evolution of this marketplace to the
forces of private-sector competition. They are especially uncomfortable
with the prospect of being brought under the Federal Communications
Commission (FCC), asserting that this will retard innovation and
potentially deprive industry of its rightful rewards from developing new
techniques and interfaces that should be protected under the patent and
copyright laws.

An alternative view says that the FCC must continue to be charged with
protecting the public interest in telecommunications and that there is
little evidence of a commitment to open access and open platforms for
everyone among the advocates of unbridled free enterprise.
The Clinton Administration, self-conscious about its newfound commitment
to "steering, not rowing," is seeking ways to reduce the bureaucratic
role of the FCC in digital standards while at the same time creating
incentives for the use of open and nonproprietary interfaces in national
information infrastructure applications. A major test for all parties
will occur in 1995 as the commission takes the final steps in adopting a
digital television standard (high-definition television).


The present telecommunications common carrier system harbors an
elaborate set of internal subsidies that redistribute revenue and costs
on behalf of a variety of social goals. Rural consumers are subsidized
by urban consumers, and residential use is subsidized by business use,
to mention only two categories. The total amount of such subsidies
cannot be determined precisely, but it is considered by most observers
to be in the range of several billion dollars a year.

The present system is beset with many problems, of which the two most
important are that those contributing--the regulated common carriers--
constitute an ever-diminishing proportion of the total communications
industry and that those benefiting--residential and rural subscribers to
telephone service--increasingly have middle-class incomes that do not
warrant subsidization of their service.

In its search for answers to a variety of subsidy issues, the National
Telecommunications and Information Administration in the Department of
Commerce has been conducting a yearlong study of universal service. A
study report and recommendations are expected to be part of White House
participation in telecommunications legislation in coming months.


Almost as important as where we are going in telecommunications is the
question of how we get there. The United States isn't going to ditch
several hundred billion dollars in analog facilities overnight. But
almost everyone agrees that the country needs a telecommunications
industry that looks more like the computer industry: open, competitive,
fast paced, and innovative. Will there be casualties? Without any doubt,
as can be seen by the more than 100,000 jobs already eliminated in the
deregulated long-distance segment of the industry. Will there be
benefits? Also without any doubt, as can be seen by falling prices for
service and increased revenues and employment in those parts of the
industry based on new digital technologies.

Michael M. Roberts is vice president of Educom. [email protected]

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