Revolutionary innovation and competition have shaken up the telecommunications sector, prompting at least three important mergers. Government officials who set the rules of the game are now faced with key decisions that will affect the future of communications in America.
Federal regulators may approve the mergers of SBC/AT&T and Verizon/MCI as soon as this week, but some states, such as California, are dragging their heels. At both levels of government, self-interested competitors and profiteering interest groups are predictably calling for handouts and unfair hand-ups.
Communications Changes
Government has a job to perform, and that is to remain above the fray. It should not give in to the illogical arguments of those who either hate capitalism and corporations, or want to use the official review process to hinder competitors. In that second category are companies such as BT Americas, Broadwing Communications, Level 3 Communications, Qwest, SAVVIS, and XO Communications.
These six companies asked the Federal Communications Commission (FCC) to put constraints, such as price controls, on SBC and Verizon if the mergers are to go through. This type of call for government intervention gives one a distinct “been there, done that” feeling — and it’s not good. Communications is changing rapidly and government attempts to micromanage are a prescription for failure.
It should be clear by now that governments do not create competition — markets do. And markets best serve consumers and create jobs in an environment free from heavy government involvement. The dismal record of the 1996 telecom act speaks to this point and stands as a stark reminder that price and “access” controls don’t work. The way to ensure benefits for consumers and communities is to allow for low regulatory barriers to entry into the marketplace so that competition drives innovations and good customer service. Consider new developments in phone and cable markets.
It was easy for multiple providers to get into the phone market when voice over Internet protocol (VoIP) came along. That’s driven phone prices down and taken a significant chunk of business away from traditional phone companies. With a broadband connection, a phone line and free long distance is US$14.95 a month if one chooses a provider like Vonage. If one chooses a company like Skype, phone service is free. Cable, on the other hand, is another story.
Paying Too Much
Because of regulatory barriers, it’s been difficult for phone companies to enter the video market, and a new study by the American Consumer Institute shows that if the situation isn’t remedied soon, a lot of money could be wasted.
“In five years, consumers will have paid $107 billion too much for cable TV services,” states An Analysis of Cable TV Services: Are Older Consumers Losing Out?. What’s worse is that older consumers are more vulnerable as cable grabs a greater portion of their income. With this kind of data, it is disturbing that groups like the Greenlining Institute in California are trying to saddle communications companies with a list of demands that extort money under the guise of helping consumers.
Under immense pressure from profiteering advocates, SBC and Verizon have agreed to what amounts to a California merger extortion tax: a combined $67 million that will go to fund the very organizations that hound them.
Why would these corporations agree to such a deal, when that $67 million could be better deployed for improved networks and more advanced services? Simple: it’s better than the extremely irrational deal they were offered by Administrative Law Judge Thomas Pulsifer. He wanted the companies to fork over $330 million for the privilege of organizing their businesses in ways that would stimulate the economy and create jobs.
Fostering Innovation
These are the choices that the current regulatory regime imposes on key broadband providers. Pandering to whining competitors and obnoxious advocacy groups is part of the reason America lags seriously behind in the deployment of broadband. That calls for better government leadership.
New FCC Commissioner Kevin Martin may be willing to play the responsible role, but he can’t do it alone. State legislators and public utility commissioners also need to step up and just say no to the culture of irrational entitlement that smothers innovation in telecommunications.
Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute. She also serves on the Technology Advisory Board for the Acceleration Studies Foundation.
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