Ensuring Competition through Deregulation

The Federal Communications Commission (FCC) is currently assigned to deregulate special access rates, a service provided by traditional incumbent local exchange carriers (ILECs).

Special access refers to the high-capacity local links, such as high-speed T-1 and T-2 lines that local phone companies provide to businesses and other heavy volume generators of telecom traffic. The FCC considers special access to be fully competitive and allows a significant amount of price flexibility, within certain limitations. Since the market was recently deregulated in 2004, prices have risen substantially, but cable companies and wireless providers are beginning to compete by supplying special access. For such a capital intensive industry, some time is required for competition to materialize.

The maze of rules and regulations which must be navigated by large and small carriers hampers price competition. The FCC should continue to loosen regulatory control, removing all remaining price controls on special access rates.

That is, if Republican law makers can step aside. In a letter written on September 13, 2007 to Kevin Martin, the Chairman of the FCC, Reps. Chip Pickering (R-Miss.) and John Shadegg (R-Ariz.) expressed dismay at the profitability of ILECs. In their letter, these lawmakers stated that “the FCC has the ability to create a more vibrant and competitive environment for consumers through special access rulemaking.” The revenue of ILECs did grow from $9.9 billion in 2000 to $16.6 billion in 2006; but that’s hardly surprising in a growing telecommunications industry. If anything, competitiveness is increasing by giant leaps. These Republicans’ logic seems to be that more special access rulemaking is the key to competition; that’s a repudiation of the market principles they should embrace. Central directives will not increase competitiveness; only freeing a market induces competition.

Removing all price controls and other regulatory barriers will create new opportunities for competition and allow greater flexibility for ILECs and other providers. The flexibility to adapt to market conditions cannot be commanded from above by the FCC, but can only come from the healthy quest for profit. Consumers and smaller providers are capable of choosing the services that will benefit them the most, providing all the incentive necessary for ILECs to compete for service. Being forced to pay fixed rates through FCC-enforced price controls will not create competition; only freeing prices and the telecommunications market will accomplish that goal.

Besides price competition, ILECs could compete by offering a variety of consumer specific discounts, innovative products and services, and convenience. There are several other ways in which competition could benefit consumers, but endless speculation of that would be so much wasted ink. The only way for consumers to see greater benefit from large carriers would be to eliminate outdated price control regimes. If politicians, such as Reps. Pickering and Shadegg really want to see a more competitive marketplace, they should take control out of the hands of the FCC and place it in the hands of the consumers.