From the March 31, 2003 issue of Telecom
don't feel comfortable with monopolies because they are, well, un-American.
Yet our unwillingness to consider the pragmatic inevitability of monopoly
power constantly distorts policy decisions -- with last month's FCC ruling
a prime case in point. The resulting compromise consigns a trillion dollar
segment of the economy to a decade or more of unproductive malaise.
weeks of open dispute between the five FCC commissioners, the majority
ruling ended up mired in a classic Washington, something-for-everyone
- It reaffirms
the rights of traditional long-distance companies like AT&T and
WorldCom to below-cost access to the local connecting infrastructure
owned by the RBOCs. Although this will temporarily permit more competition
for local voice traffic, that competition is "synthetic" because
the competition merely transfers income from the RBOCs to the new entrants.
Since no new infrastructure is built, the day the transfer rules lapse
will be the day competition ends.
- It gives
the Bells the right to total control over their broadband investments.
Yet, as everyone in the industry knows, data via the Internet is the
future, not voice over narrowband copper. Preferential rates for voice
now, as well as ongoing requirements to maintain bypassed wires for
the benefit of competitors, simply undercuts profitability at the Bells
and thus impedes their ability to rapidly expand high-speed, broadband
access to the Internet. The result will be to slow the spread of broadband
to the majority of U.S. population and all the innovative new services
-- including inexpensive voice over the Internet -- that broadband promises.
- It puts
America's telecom future almost entirely in the hands of state regulators.
Not only did it reaffirm the rights of individual states to set rates,
but a close reading of the preliminary ruling reveals dozens of "exceptions"
by which state utility boards can overrule FCC national standards for
everything from business voice lines to in-building wiring. This return
to state sovereignty undermines any hope that the telecom industry can
attain the national economies of scale for Internet-based communication
that will ultimately bring down costs. Instead, telecom companies appear
certain to find themselves in the truly horrible situation of needing
to install different equipment under different rules in different states.
The result will be continuing court
challenges, economic uncertainty and, of course, hesitant investment.
FCC ruling will give satisfaction to those who blame the Bells for
actively subverting the 1996 Telecom Act. Indeed, it is an open industry
"secret" that the Bells found numerous ways to impede transactions
exercising their statutory obligation for resale. Yet, as anyone who
has shared a driveway with a neighbor knows, some situations automatically
lead to conflict. The Act created just such a situation. Insisting
that the Verizons and BellSouths of the world share access equipment
with competitors like AT&T and Covad was like insisting that United
share airline seats with Southwest.
of undermining the Bell monopolies, we need to recognize that some
monopolies are "natural." Specifically, the economics of
capital recovery and the complexity of easements dictate there can
only be one local loop per city. A second local loop, with identical
capabilities, is something neither consumers nor the capital markets
will support. At the same time we need to recognize that monopolies
that keep to their business are good for business . The danger of
monopolies arises when their owners use their position to leverage
control into related markets -- as Microsoft did moving from operating
systems into spreadsheets.
could avoid that danger by reaffirming the Bells' historic task of
delivering telecom access to customers for a fair rate of return.
In exchange for wireline network sovereignty, however, we should insist
that the Bells give up service sovereignty, where there is no natural
monopoly. That would open the field to hundreds of competitors with
fresh approaches to voice mail, video and music delivery, always-on
dial tone, voice-over-Internet and many others.
the oligopolies that control cable and wireless communication would
at least bring a measure of indirect competition to the Bells -- especially
if competition were held on a level playing field. They, too, should
separate service from transport, and be subject to the same panoply
of universal service fees and shared access rules faced by the RBOCs.
The FCC could add even more zest to the competition by opening portions
of wireless spectrum to unregulated competition. These airwaves are
easier to share, with lower capital costs and less state regulation,
and would draw many new business entrants. And more competition from
wireless providers would spur still more competition from wireline
combination, such an approach would give stability and clarity to
telecom over the next decade, while opening the way to a measure of
innovation and new telecom business formation. Truly attractive start-up
investment opportunities would still be relatively rare, and, as a
venture capitalist, I would not be terribly excited. But at least
I would not be depressed, which, looking at the current mess the FCC
has left us with, is what I am now.
Blonder, former Chief Technical Advisor to AT&T, is a partner
with Morgenthaler Ventures and is based in Princeton, N.J.