Is Sharing Always Best?

Is Sharing Always Best?

February 28, 1999

For the past few months, a number of hot, sure-to-be-discussed-around-the-office-cooler stories have been dominating the headlines: Monica Lewinsky, Kosovo, Monica Lewinsky, the canonization of Michael Jordan, and – of course – Monica Lewinsky. Intriguing as these stories are, some developments more likely to affect our lives have been buried deeper in the papers. Among these are the on-going battle over mandatory access to telephone, cable, and other networks.

No kidding. Long after Monica is forgotten (or at least gone), the outcome of this debate will be affecting how we communicate, what information we get, and who we get it from.

The present debate stems from the Telecommunications Act of 1996. Intended to foster competition, the act required incumbent providers to allow new competitors to interconnect with, and use parts of, their networks (at a price ultimately determined by the government).

Many saw this as reasonable. After all, how could long distance telephone competition have begun if MCI and Sprint couldn’t connect their calls to users of AT&T’s comprehensive monopoly network?

The concept, however, was a slippery slope down which telecom regulators could not resist sliding. Thus, in determining what parts of the incumbent’s network must be made publicly available, the Federal Communications Commission didn’t even attempt to limit the rules to facilities that are "bottlenecks" and essential to competition. Instead, it required incumbents to let their competitors use virtually any part of their network that could feasibly be made available. Under this kitchen sink approach, even employees such as telephone operators might have to be "leased" out – cheerily greeting customers with the name of the competitor, rather than the company that signs their paycheck.

The results of this form of "deregulation" have been worrisome. Among other things, construction of competing networks is discouraged. After all, why buy the cow when you can get mandated access to the milk at government-determined rates?

In January (buried beneath the impeachment news), the Supreme Court put some limits on forced access. The telecom act didn’t authorize an access free-for-all, it said. Network elements must be found to be "necessary," or their absence to impair competition, before mandatory access rules can be applied.

While narrow, the decision showed the Supreme Court knows that mandates are not an all-purpose, no-pain substitute for real markets. As Justice Stephen Breyer wrote in his concurring opinion: "Rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms."

Nevertheless, the forced access train has hardly stopped. On the same day the Court’s decision was announced, a new coalition – led by America Online – was formed to extend such rules to cable firms offering high-speed internet connections. Here, there’s not even the excuse of a current "dominant" provider with "bottleneck" facilities. Even industry giants like TCI only have a fraction of internet connections. Of course, they’re unlikely to put in the billions necessary to improve those connections if they have to share them with every competitor.

Here’s the real irony. Local telephone companies also want to build high-speed internet connections of their own. But, they are being hindered by – you guessed it – the telecom act’s access rules.

The Supreme Court was right to put up a caution flag about forced access. Despite what they teach in kindergarten, sharing isn’t always best.