When Hurricane Isabel cut a wide swath through the mid Atlantic, electricity
went out and cable went dark for millions in the region, most for two or three
days; some for much longer. For most of those who lost power, though, one connection
remained on–their old standby wireline phone. Even when the batteries of those
cell phones that remained working died, the local phone line was alive.
It was designed to be that way. Phone service is considered so vital for emergency
purposes that local phone lines have their own little power system–the equivalent
of a nine-volt battery per line–to keep phones up and running even when other
electrical devices are cut off. Government protection and subsidization through
regulated rates on business and long-distance services over decades created
this $300 billion network that today’s local phone monopolies inherited and
That network places great responsibility upon local phone companies. And I
commend their service. But it also provides them with huge competitive advantages.
As the Supreme Court noted last year in upholding the Federal Communication
Commission’s pricing guidelines for the leasing of the local network to competitors,
the networks provide the Bells with “almost an insurmountable competitive
advantage,” as access elements are extremely “costly to duplicate”
even for “large competitive carriers” that might have the resources
to replicate them.
I am no fan of regulation. It can stifle innovation and produce huge economic
inefficiencies. But to simply let a protected monopoly loose into other competitive
telecommunications markets, including video, long distance, Internet, and wireless
services, as Ms. Katz suggest, is an invitation to disaster. Unregulated monopolies
can kill competition and stifle innovation, too.
That certainly was the case in the early 1990s when then Pacific Bell and other
Bell operating companies proposed treating calls to Internet Service Providers–the
gateways to the Internet–like long-distance calls with 19-cents-a-minute charges.
They said Internet calls threatened the viability of their networks. The FCC
demurred, and wouldn’t allow the per minute charges. As it turned out, the ISPs
investments actually helped improve the local networks.
Similarly, the Bells kept high-speed digital-subscriber technology in the closet
for years until Covad and other local data telecom companies showed how to make
it available over Bell lines to both residential and small-business consumers.
The Telecommunications Act of 1996 was written in large measure at the behest
of the regional Bell operating companies because they wanted the freedom to
get into those competitive arenas. Seven at the time, they have since merged
themselves into four. They still control 85 percent of the local-market phones.
They have been granted permission to provide long-distance service in 42 states.
Two–SBC and Verizon–are key players in the wireless market.
Their failure to fulfill their promises of opening their networks to competitors
in return was the source of the telecom carnage of recent years. Interim regulations
finally being enforced to pry those networks open provide the best hopes for
a telecom resurgence in a competitive telecommunications sector. It is the path
to true deregulation.
The Supreme Court noted that the Bells have an almost insurmountable monopoly.
The advocates of rapid deregulation would get rid of the almost and spread that
monopoly over the entire telecommunications landscape. What would happen then
to innovation, jobs, and the economy would dwarf the devastation of Isabel.
For the light of competition would go out not for days or weeks, but decades.
–Duane D. Freese, formerly on the editorial board
at USA Today, is a columnist and editorial consultant