Twilight for Traditional Telecom Regulation?

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Slowly but surely, change is coming to the world oftelecommunications regulation. While it's easy to get pessimisticabout the sluggish pace of reform in the eight years since thenot-so-revolutionary Telecommunications Act of 1996 passed, recentdevelopments prove that central planning is finally starting togive way to a future of free markets and consumer choice.

Consider that, on October 14, the Federal CommunicationsCommission quietly promulgated a new rule allowing incumbent telephonecompanies to run "fiber-to-the-curb" (FTTC) lines within 500 feetof a customer's home or office without fear ofinfrastructure-sharing mandates. (A previous FCC decision had already liberated"fiber-to-the-home" (FTTH), making it clear that telcos would notbe forced to share lines that ran all the way to the customer'spremises.) On the same day, the FCC announced new rules allowing energy andelectricity carriers to offer Broadband over Power Line (BPL)service to their customers.

Those unfamiliar with the mysteries of modern communicationsregulation might reasonably ask: Why does the government have anysay over these decisions to begin with? Shouldn't these companiesbe free to offer consumers these innovative new services withoutasking "Mother, May I"? Of course they should, butthat's not the way telecom regulation has long worked. In the eyesof many regulators, you are guilty of being a monopolist untilproven innocent.

Yet, many regulators are finally coming to see that there is nodenying the realities of our competitive communicationsmarketplace. Shackling one set of players with unique rules nolonger makes any sense in a world where every home or office hastwo or three wires to choose from, and wireless options too. Asthese two recent FCC decisions illustrate, the war over telecom isdrawing to a close. But let's step back for a moment and considerjust how costly and unproductive this war has been.

Leave No Telecom Consultant Behind. A few yearsago, a rather remarkable advertising/public relations battle tookplace over a piece of telecom reform legislation sponsored byRepresentatives Billy Tauzin (R-La.) and John Dingell (D-Mich.).Ads both praising and blasting the "Tauzin-Dingell" bill littered the papers,television and radio, and even Internet websites. The industrycombatants who waged this battle spent countless millions. A lot oflawyers, consultants and PR companies got very rich by coming upwith crafty bumper-sticker slogans and slick-looking ads. The funny(or perhaps sad) thing is, despite all the time, energy, and moneydevoted it, few even knew what this fight was really all about.

Nonetheless, the fight was important. At stake was thequestion of how future communications and broadband markets,networks, and technologies would be regulated. Simply put, theTauzin-Dingell bill stood forthe proposition that it didn't make sense to regulate the new stuffthe same way we regulated the old stuff. More specifically, thebill proposed a regulatory quarantine of sorts between the rulesgoverning old telecom networks and those for next generationhigh-speed broadband services. The Tauzin-Dingell bill exempted newinvestments and networks from the infrastructure sharing rules thatgoverned old copper telecom systems.

The legislative war over Tauzin-Dingell was epic, but ultimatelylittle came of it. After years of shelling from both sides, theguns fell silent on Capitol Hill as the battle shifted to otherfronts, namely the FCC and the courts. Things weren't much betterat the FCC. Agency officials engaged in protracted debates over theregulations spawned by the Telecom Act. Among many other things,the question of the old rules-new networks problem was raisedagain. And, again, policymakers delayed giving the industryspecific answers about what to expect.

Uncertainty ruled. Markets tanked. Carriers scratched theirheads, wondering whether to deploy new systems. Many equipmentvendors closed their factories. And Washington telecom lawyers andconsultants continued to get very rich.

The Beginning of the End. In March of thisyear, the D.C. Circuit Appeals Court said enough is enough. The court tossed out most ofthe FCC's revised infrastructure-sharing rules. In June, the Bushadministration announced it would not seek Supreme Court review ofthat decision. Since then, the FCC has been trying to find a way tobackpedal out of this mess and save face at the same time. Revisedrules are slowly trickling out to comply with the Court'sorder.

Which brings us back to the FCC's decisions liberating new fiberdeployment. The decisions free the telcos to play catch up to cableoperators-much like the Tauzin-Dingell bill had proposed many yearsago. But is it too little, too late? Cable already enjoys asizeable lead in the high-speed broadband market, thanks in largepart to more than $80 billion in investments cable operators madethroughout the late 1990s to deploy all-digital, interactivebroadband systems. That allowed cable to offer consumers fasterbroadband than what most telcos can provide, as well as voiceservices through voice over Internet protocol (VoIP). Meanwhile,cable companies still have plenty of video services, includinghigh-definition TV (HDTV) channels. Telcos don't have comparablevideo services to offer their customers.

Thus, cable has the infrastructure in place today to offerconsumers the Holy Grail of communications service-voice, video,and data bundled into one bill. And cable continues to enjoyfreedom from infrastructure-sharing mandates. By contrast, thetelcos have a core competency in voice services, but they arestruggling to catch up in the data business and have few videoofferings ready to go. Worse yet for them, wireless and VoIP providers are cannibalizing their voicemarket. Despite this, the telcos remain buried underneath mountainsof regulatory mandates that require them to share much of theirinfrastructure with rivals. Hardly seems fair when you think aboutit.

More than five years ago, policymakers had a chance to rectifythis unjust regulatory asymmetry with the Tauzin-Dingell bill, butthey delayed and continued to delegate the important decisions tothe FCC and the courts. Consequently, more than eight years afterthe passage of the Telecom Act, we're still struggling to get outof this regulatory mess.

Though the war is not over yet, many important battles have beenwon. With the FCC's latest BPL order, the "freedom for fiber"decisions, and other proceedings like the pending IP-enabled services rulemaking, there is achance to make more than just a clean break with the past. There isthe chance that we can close the book on the traditional publicutility, litigation-oriented regulatory regime and replace it witha marketplace governed by property rights, pricing freedom, andvoluntary contracts. The old regime is not dead yet, but its daysare numbered.