Legislators ponder Telecom Act overhaul

For the first time in five years, leaders in both houses are seriously considering broad changes to the 1996 Telecom Act, designed to spur competition in the local phone and other telecommunications markets. The House Commerce Telecommunications Subcommittee last week passed a bill to allow Bell companies to send data long distances, and at a hearing Wednesday the Senate Judiciary Antitrust Subcommittee considered additional changes to spur competition.

But top subcommittee Democrat Herb Kohl of Wisconsin cautioned his colleagues on the Hill's power in this arena.

"Congress can't mandate competition," Kohl said. "If competition doesn't make business sense, laws like the Telecom Act won't really work."

Concern over bankrupt competitors
Subcommittee Chairman Mike DeWine, R-Ohio, bemoaned the fact that residential homes were served by Bells in local phone service in almost 97 percent of all cases. In addition, he said he was concerned that in the last year "we have seen some (competitors) go out of business as the capital markets begin to re-evaluate the financial prospects of the market for competitive telecommunications services."

Cox Communications CEO James Robbins said his competitive local exchange carrier (CLEC), Cox Digital Telephone, had 300,000 customers, making it the nation's 12th largest phone company. But he said "CLECs depend on the capital markets to survive. They cannot do so if regulators inject uncertainty into an already precarious environment." As a result he urged Congress not to tamper with the Telecom Act, even though it's "not perfect."

Another witness was more enthusiastic about opening the Telecom Act. McKinsey Senior Advisor Reed Hundt, who as chairman of the Federal Communications Commission had the responsibility of implementing the Telecom Act, urged aggressive action.

Hundt said the struggling competitors DeWine referred to must not be allowed to fail. "If the new entrants lose the foothold that they established during the past several years, we risk losing the competitive dynamic that prompted the extraordinary economic growth and innovation the industry experienced in the late 1990s."

Broadband emerges as a concern
Hundt said the "single most important provision" in the Telecom Act was the requirement that Bells unbundle their networks for competitors, something some competitors fear will suffer if the broadband bill passed last week in the House subcommittee becomes law.

In addition, critics claim the bill--sponsored by the top two members of the House Commerce Committee, Billy Tauzin of Louisiana and John Dingell of Michigan--would leave a broadband duopoly of Bells and cable giants.

One of the loudest to object at the hearing was a representative of the largest cable provider in the United States, AT&T. President David Dorman said "Congress must reaffirm its commitment to the market-opening provisions" of the Telecom Act and "resist efforts by the Bell companies to weaken that commitment through unwarranted legislation."

But "we should not be satisfied if only large enterprises reap the benefits of broadband deployment," Hundt said.

DeWine said his focus now is on local phone competition, but acknowledged the debate on Tauzin-Dingell is important because it "is related to the broader question of whether we need to revisit the Telecom Act to provide a different balance between the incumbent and competitive providers."

The Tauzin-Dingell bill has also drawn the interest of House Judiciary Committee Chairman James Sensebrenner, R-Wis., who wrote House Speaker Dennis Hastert, R-Ill., May 1 to request that his committee also have the right to review the bill. Sensebrenner said he is concerned that the bill could have antitrust implications if there were a market consolidation in broadband as a result of the bill.

SBC Communications General Counsel James Ellis pitched broadband deregulation for Bells, even though DeWine said he didn't want to address that subject. He also said SBC "has done an outstanding job" opening its network to competitors. As evidence he cited FCC approval of SBC to provide long-distance in three states--Texas, Kansas and Oklahoma--and the fact that "CLECs have captured more than 10 million lines throughout the SBC region."

Although SBC is a strong backer of the Tauzin-Dingell bill--which would rewrite the Telecom Act with respect to data services--Ellis saw no reason to re-open the act with respect to local phone competition, as he felt the impact of the act "on local competition has been enormous."

No specific legislation was under consideration at the hearing, but several members are considering introducing bills that would modify the Telecom Act, and many of those would find consideration in the Antitrust subcommittee.