Everyone knew there would be winners and losers after the Federal Communications Commission’s big vote on changing the rules governing local telephone competition. There are, but it’s going to take a spreadsheet and more litigation to sort them all out.
The big question is, did consumers win in the FCC’s split decision? Fledgling competition in local phone service, which is driving down those rates, will continue. The cost of high-speed Internet access, however, may rise.
SBC and the other Baby Bells lost big because a majority of the FCC rebuffed Chairman Michael Powell’s attempt to chuck the regulatory rules in favor of ending government-ordered access for competitors. The rules that require the Baby Bells to rent their networks cheaply to AT&T, MCI and other competitors remain in place.
But the Baby Bells scored a potentially big win when the commission voted to let them reap all the benefits for upgrading their lucrative broadband Internet networks. The competitors can no longer piggyback cheaply on those networks. They’re going to have to pay market rates or make their own investments to compete in high-speed Internet access.
There is some logic to that: The Baby Bells have to share the phone networks they first built under monopoly protection, but can keep the profits of the broadband networks they are building in a more competitive environment.
Nevertheless, this decision will be litigated, as has been the case at every step since Congress in 1996 directed the FCC to write rules promoting local phone competition. The FCC’s two previous attempts to devise rules that could withstand court review failed.
The Illinois Commerce Commission and the other 49 state utility regulatory agencies now will play a dominant role in deciding whether SBC and the others are playing by the rules. The FCC ceded authority to the states to determine how long the Baby Bells will be required to rent out their networks cheaply to competitors.
Anyone hoping for regulatory clarity and certainty will be disappointed. Maybe that was too much to hope for in this contentious area. Prying open the local phone market has proved over the last seven years to be the thorniest piece of telecom deregulation.
The FCC’s shifting 3-2 votes on these rules reflect the deep philosophical and tactical divisions among commissioners on how best to achieve competitive local phone service in the U.S. The swing vote on the FCC was fellow Republican Commissioner Kevin Martin, who sided with Powell to lift the broadband rules and with Democratic commissioners to retain local phone rules and cede authority to the states.
In a rare chairman’s dissent from a majority vote, Powell said the decision “will prove too chaotic for an already fragile telecom market” and will produce “a molten mass of regulatory activity.” He may be right. But others on the commission believed, with justification, that aburptly ending the regulated cost structure would stop competition in its tracks.
Powell is said to be deeply frustrated by this result. That’s a shame, because his deregulatory instincts are generally on the mark. This was an unfortunate choice for the FCC: a regulatory muddle or a return to monopoly.
