Remaking the Telecommunications Act

As the law marks its fifth anniversary Wednesday, the chorus here has never been louder for it to be modified, if not altogether reworked. Critics have specifically cited the lack of competition in the local phone and broadband markets--issues the Act was supposed to have addressed.

There is a woeful lack of consensus on what change is needed, however, or who is to blame for the Act's failures. Congress points to the Federal Communications Commission, regulators blame the courts, and the industries blame each other.

This week's anniversary will involve a flurry of announcements from key members of Congress outlining their agendas for remaking the Act. The strongest momentum right now appears to be in support of loosening regulations on Bell companies so they can better compete in broadband, a move competitive local exchange carriers (CLECs) say could mean the end of local phone competition.

Newly appointed House Committee on Commerce Chairman Billy Tauzin, R-La., "would like to finish the work on the Act," said spokesman Ken Johnson. "The intent of the Act was to deregulate telecommunications, but we don't have competition in broadband." Still, he said Tauzin didn't see the bill as a total failure, as it "did bring us lower telephone rates and wireless competition."

Subcommittee on Telecommunications, Trade, & Consumer Protection Ranking Democrat Ed Markey of Massachusetts, however, doesn't see any legislative proposals out there that would improve competition. "We would not advise a reopening of the Act," said his telecommunications adviser Colin Crowell.

Broadband competition at issue
In the high-speed broadband Internet market, cable companies were quick to serve residential customers. Bells were much slower to offer DSL service to people's homes, although they have been much quicker in the last year. Bell companies argue that greater regulation on their broadband service has put them at a disadvantage.

One irony of the Telecommunications Act debate is that the CLECs accuse the Bells of stalling in the local phone market to maintain a regulatory advantage, while the Bells accuse cable companies of stalling in the broadband market for the very same reason.

Broadband providers such as cable companies "have tried to freeze out the Bells as long as they could" in the broadband market, Johnson said.

In the last Congress, Tauzin and House Committee on Commerce Ranking Democrat John Dingell of Michigan co-sponsored a bill that would have allowed Bells to enter the long-distance data market to further broadband competition. The bill was co-sponsored by a majority of the House but was later blocked.

Tauzin and Dingell are working on a new version of the bill that should be introduced soon. Staff members didn't address what specifics the new version might contain, but several sources said it could evolve to the point of declaring the broadband market for all providers--not just cable and DSL but satellite, wireless and others--off-limits for regulation.

"We hope (the bill) comes back and comes back quickly," said Gary Lytle, interim president of the United States Telecom Association (USTA), which represents incumbent phone companies including Bells, although for now USTA would prefer the earlier version of the bill.

Others are skeptical of a bill covering all broadband services. "Something like that would be doomed to fail," said Markey aide Crowell. "It's too much of a greedy grab" by the Bells and cable companies, he said.

No cable company has stepped forward to support such a bill, however, and they are already essentially deregulated in broadband. AT&T Vice President for Congressional Affairs Peter Jacoby denied that his company had participated in any discussions with Bells on the subject, despite rumors that Verizon Communications Senior Vice President for Public Policy Tom Tauke has been talking to cable companies about collaboration on the issue.

The idea of letting Bells handle long-distance traffic, even if it is data and not voice, riles CLECs, which argue that the Telecommunications Act was explicit in requiring Bells to fully open their networks to competitors before gaining access to long-distance business.

"It is critical that Congress strongly oppose any legislation that would give the Bells unnecessary and unwarranted 'relief' from the long-distance restrictions to provide data and other broadband services without first allowing competition for local telecom services," CLEC association CompTel argued in a recent policy paper.

Competition is still lacking even in states where a Bell has gained entry to the long-distance market, said Jacoby. "We're going to take that case to Capitol Hill and the FCC," he said. Still, he felt it was possible competition could be achieved through better implementation of the Act. "The structure of the Act is still intact and still working," he said.

Tauzin, however, doesn't believe the long-distance market is lucrative enough to lure the Bells into giving up significant local market share anyway. "In a matter of years we won't even be quibbling about long-distance competition," said Johnson. "Companies are going to be giving it away with broadband services."

Last year saw the decline in the long-distance market painted starkly in the free fall of AT&T, WorldCom and Sprint. The three lost more than half their market value as the long-distance sector continued to post double-digit revenue declines.

"The price wars in long-distance have moved companies away from voice," said Andersen Consulting partner Gene Michaelson, a telecommunications analyst. "The battle is over data" both in the markets and in Congress, he said.

Bells just want to see all broadband services unregulated, said SBC Communications spokesman Matt Miller. Regulating a Bell's DSL service doesn't foster the spread of that service, he said, adding "this is a regulatory environment that is plagued with uncertainty."

That uncertainty is making it hard for network equipment businesses trying to strike optical deals with Bells, said Sycamore Networks CEO Dan Smith. Speaking at ComNet in Washington last week, Smith decried the regulatory burdens on telecommunications providers. "I would open it up (broadband networks) to all comers," he said, adding "I would reduce the FCC to three people who would manage the radio frequency spectrum."

FCC under the gun
"If we made one mistake in 1996 (with the passage of the Act) it was not making changes to the FCC," Johnson said. Tauzin is having discussions with his successor as House commerce telecommunications subcommittee chairman, Fred Upton of Michigan, about introducing legislation to reform the FCC, specifically by reducing its authority to conduct merger reviews.

Upton, meanwhile, is uncommitted on reforming the Telecommunications Act, his aide Mike Waldron said, planning at first merely to identify "where technologies and legislation are out of sync."

Markey would like to see "a greater, more vigilant enforcement of the Telecom Act," Crowell said, and the congressman might introduce legislation or request hearings to try and prompt such action.

Senate commerce communications subcommittee chairman Conrad Burns of Montana "still feels one portion of the Act is not being enforced by the FCC," said his telecommunications aide Ben O'Connoll. That portion requires the FCC to eliminate unnecessary rules that can interfere with the spread of advanced services, such as broadband or future offerings, particularly to rural areas.

If any legislation gets passed in this Congress "it will be a surgical fix" rather than a "frontal assault" on the Act, predicted National Cable TV Association (NCTA) Vice President David Beckwith. A major rewrite "historically can take several Congresses," he said, noting the Telecommunications Act itself was about five years in the making.

NCTA "is very reluctant to open the Act," said Beckwith. "Once you open the Act you never know what will happen."