Twilight for Traditional Telecom Regulation?

Published January 1, 2005

While it’s easy to get pessimistic about the sluggish pace of reform in the eight years since the Telecommunications Act of 1996 passed, recent developments prove central planning is finally starting to give way to free markets and consumer choice.

Consider that the Federal Communications Commission (FCC) promulgated a new rule allowing incumbent telephone companies to run fiber-to-the-curb lines within 500 feet of a customer’s home or office without fear of infrastructure-sharing mandates. The FCC also has announced new rules allowing energy and electricity carriers to offer Broadband over Power Line (BPL) service to their customers.

Many regulators are finally coming to see the realities of our competitive communications marketplace. Shackling one set of players with unique rules no longer makes any sense in a world where every home or office has two or three wires to choose from, and wireless options too. As these two recent FCC decisions illustrate, the war over telecom is drawing to a close. But let’s step back for a moment and consider just how costly and unproductive this war has been.

Leave No Consultant Behind

A few years ago, a rather remarkable advertising/public relations battle took place over a piece of telecom reform legislation sponsored by Reps. Billy Tauzin (R-LA) and John Dingell (D-MI). Ads both praising and blasting the “Tauzin-Dingell” bill littered the papers, television and radio, and even Internet Web sites. Lawyers, consultants, and PR companies got rich. The funny (or perhaps sad) thing is, despite all the time, energy, and money devoted to it, few even knew what this fight was really all about.

Nonetheless, the fight was important. The Tauzin-Dingell bill stood for the proposition that it didn’t make sense to regulate the new stuff the same way we regulated the old stuff. The bill proposed a regulatory quarantine of sorts between the rules governing old telecom networks and those for next-generation high-speed broadband services. The bill exempted new investments and networks from the infrastructure-sharing rules that governed old copper telecom systems.

The legislative war over Tauzin-Dingell was epic, but ultimately little came of it. After years of shelling from both sides, the guns fell silent on Capitol Hill as the battle shifted to the FCC. Things weren’t much better there.

Agency officials engaged in protracted debates over the regulations spawned by the Telecom Act. Among many other things, the question of the new networks/old rules problem was raised again. And, again, policymakers delayed giving the industry specific answers about what to expect.

Uncertainty ruled. Markets tanked. Carriers scratched their heads, wondering whether to deploy new systems. Many equipment vendors closed their factories. And Washington telecom lawyers and consultants continued to get rich.

The Beginning of the End

In March 2004, the D.C. Circuit Appeals Court tossed out most of the FCC’s revised infrastructure-sharing rules. Since then, the FCC has been trying to find a way to backpedal out of the mess and save face at the same time. Revised rules are trickling out slowly to comply with the Court’s order.

Which brings us back to the FCC’s decisions liberating new fiber deployment. The decisions free the telcos to play catch-up to cable operators. But is it too little, too late?

Cable already enjoys a sizeable lead in the high-speed broadband market, thanks in large part to more than $80 billion in investments cable operators made throughout the late 1990s to deploy all-digital, interactive broadband systems. That allowed cable to offer consumers faster broadband than what most telcos can provide, as well as voice services through voice over Internet Protocol (VoIP) and plenty of video services, including high-definition TV. Telcos don’t have comparable video services to offer their customers.

Thus, cable has the infrastructure in place today to offer consumers voice, video, and data bundled into one bill. And cable continues to enjoy freedom from infrastructure-sharing mandates.

By contrast, the telcos have a core competency in voice services, but they are struggling to catch up in the data business and have few video offerings ready to go. Worse yet for them, wireless and VoIP providers are cannibalizing their voice market. Despite this, the telcos remain buried underneath mountains of regulatory mandates that require them to share much of their infrastructure with rivals.

More than five years ago, policymakers had a chance to rectify this unjust regulatory asymmetry with the Tauzin-Dingell bill, but they delayed and continued to delegate the important decisions to the FCC and the courts. Consequently, more than eight years after the passage of the Telecom Act, we’re still struggling to get out of this regulatory mess.

With the FCC’s latest BPL order, the “freedom for fiber” decisions, and other proceedings like the pending IP-enabled services rulemaking, there is a chance we can close the book on the traditional public utility, litigation-oriented regulatory regime and replace it with a marketplace governed by property rights, pricing freedom, and voluntary contracts.

Adam Thierer ([email protected]) is director of telecommunications studies at the Cato Institute in Washington, D.C. An earlier version of this article appeared in the Cato Institute’s TechKnowledge newsletter (