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Time to Get Tough on Telecom Regulatory Reform

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Time to Get Tough on Telecom Regulatory Reform

Cox Op-Ed in Worcester Business Journal

The FCC is not subject to any sort of mandatory "three strikes" law as are some criminals. But maybe there is justification for an equivalent edict in the regulatory world when a federal agency's rules air repeatedly held unlawful.

On Mar. 2, the federal Appeals Court for the D.C. Circuit Court handed the FCC another loss. The court inval- idated much of the FCC's rules that force phone carriers to lease their networks to rivals at government-mandated prices. The decision affects the rules that were issued last year as part of the FCC's Triennial Review Order, which itself is an outgrowth of a prior ruling by the D.C. Circuit in 2002 that struck down the FCC's unbundling rules. The rules are the FCC's attempt to implement a section of the federal Telecommunications Act of 1996 that requires incumbent companies to offer competing carriers access at below-market rates to elements of the network without which they would suffer "impairment."

Each side of the debate claims the moral high ground that it is for "competition" and consumers. The incumbent companies want rules conducive to attracting capital for needed future investments, especially in broadband technologies. The competing companies advocate for choice and the kind of competition that arises when consumers have lots of options.

So what is competition? There is no hard and fast definition. As hard as it to assess  and quantify, it is similarly difficult to create by FCC mandates and regulation. New forms of technology have expanded our historically narrow conception of competition. 

Competition is more than just the mere numbers of firms providing the exact same service. The D.C. Circuit Court recognized the substitution effect of new technologies when it upheld the FCC rules that did not mandate competitor access to broadband networks. The court determined that the FCC had reasonably justified that unbundling of broadband would "skew investment incentives in undesirable ways" and that competition from cable companies provides significant competition within the broadband market.

The same sort of logic applies to local phone service. Consumers are increasingly bypassing local phone service and using their cell phone as their home .phone. Email also competes with phone service, albeit more indirectly. Consumers benefit from these types of innovation and new products. Sure, we also benefit from lower prices. But while there's a valid argument that a salary cap might be better for competition in a closed market like baseball (i.e. make the Yankees relatively worse off), price regulation in open markets is not sustainable. We don't want the government going to hat for business plans built upon a regulatory house of cards.

In the short-term, consumers in Massachusetts will be barraged with ads from coalition CLEC (competitive local exchange carrier) groups and from AT&T. These groups will echo the sentiments of U.S. Sen. Fritz Hollings, ranking Democrat member of the Senate Commerce Committee, that the court "leveled a staggering blow to the benefits of local telephone competition." Ultimately, paying market rates for access to incumbent networks means that the competitive companies will have to increase the phone bills for some consumers. But look for increased investment into broadband by Verizon now that it knows that competitors will not be able to free ride on its outlays.

The FCC has already voiced its intention to appeal to the U.S. Supreme Court. In the meantime, the already beleaguered phone industry will remain awash in regulatory uncertainty. However one defines competition, all agree it needs predictable rules to thrive.

This is the FCC's third rulemaking attempt over eight years that has been struck down by a federal court. It's time to get tough on telecom regulatory reform.