More on regulatory relief for telcos

by on April 15, 2008 · 14 comments

As Hance discussed last Thursday, the FCC will soon rule on AT&T’s petition for regulatory forbearance. Over at Openmarket.org I blog about why the FCC should grant phone companies relief from costly reporting requirements:

America’s two largest phone companies, AT&T and Verizon, recently filed forbearance petitions asking the FCC for relief from various regulations. Verizon is asking for the freedom to set prices on wholesale connections to competitive local carriers, and AT&T has requested exemption from certain FCC audit requirements and service quality reporting mandates.  

The real question is, why should Verizon have to ask permission from bureaucrats to decide how much to charge for its products? And why must AT&T spend millions of dollars to fill out intricate paperwork just to prove to the FCC its product is good enough for customers? 

Interventionists say this is because phone companies won’t ensure service quality unless they are subject to government oversight. But this claim ignores market conditions. With competition intensifying between phone providers and new wireless networks on the verge of completion, the market will discipline any communications company that skimps on service or price. Sprint and Comcast have learned this lesson the hard way.  

Because of the FCC’s price caps and audit requirements, incumbent providers face substantial costs to comply with detailed accounting procedures. And price caps reduce the incentive to invest, ultimately hurting consumers. Instead of entrenching the status-quo through network price controls, government should reward private sector risk-taking by letting companies establish prices and service guidelines without government supervision. 

As voice, video, and data all move toward IP-based transit, telephone and cable lines are converging. Soon, both will basically function as alternative vehicles for delivering the same set of services. But the FCC, oblivious to this paradigm shift in telecommunications technology, subjects phone companies to a totally different set of regulations from cable competitors. This is one of many examples of the FCC’s unfair regulatory treatment toward competing broadband operators—Kevin Martin has imposed similarly unreasonable rules on cable companies, abrogating apartment TV contracts and barring cable providers from attracting too many subscribers

Succeeding in the marketplace shouldn’t be about dodging obsolete regulations, but about competing to offer consumers the best quality and value. 

Whenever the topic of deregulating telcos is brought up, big-government types argue that FCC rules are justified because phone companies were supposedly given billions in public money after promising to build an advanced, national fiber optic network that never materialized. Yet this oft-repeated assertion is a myth. What actually happened is that during the 90s, state lawmakers relieved telcos from certain restrictions like price ceilings, and allowed companies to depreciate capital investment on an accelerated basis. Though eliminating unfair price controls and taxes may count as a book loss for government coffers, it’s entirely different than granting public subsidies to private producers

Baby Bells didn’t secure taxpayer funds to build next-generation networks; rather, America owes its infrastructure wealth to private investment.  To be sure, some in the communications industry have at times offered overly optimistic predictions, but the underlying argument against price controls holds true to this day. Infringing on the property rights of telecommunications companies curtails freedom and innovation.  

Thanks to Verizon FiOS, fiber to the home is now reality for millions, and AT&T and Qwest are rapidly deploying advanced VDSL services like U-Verse. As cable competitors begin upgrading networks to a faster, newer standard (DOCSIS 3.0), further deregulation of telecommunications services is needed to foster network investment and faster connectivity. 

Getting rid of burdensome audit rules and price caps is the first step towards stimulating broadband competition. Until then, network operators’ hands will be tied in upgrading services to meet growing demand for bandwidth. For consumers, FCC rules are all pain, no gain.

  • deadzone

    So are the phone companies going to do away with all of the phony “Regulatory Fees” that they charge us once they get this regulatory relief? Somehow I think not. Give us what we want because we need it, but don’t pay any attention to what we do. Perfect.

  • deadzone

    So are the phone companies going to do away with all of the phony “Regulatory Fees” that they charge us once they get this regulatory relief? Somehow I think not. Give us what we want because we need it, but don’t pay any attention to what we do. Perfect.

  • sanjay mehra

    The real problem is always that there are only two main players because the Governments of most nations somehow make sure that only two mainly monopolistic communications carriers are main players in the market. It used to be the same in India, till wireless became the mainstay of communications and broadband. Suddenly, we have options which we did not have a couple of years back. The same will happen to the broadband and convergence industry. At this moment, the carriers can ask for the moon without giving anything in return, but trend of technology is going to be more and more wireless in the future. We may even see a future in which converged devices are beamed directly from a satellite along with broadband, thus ending all these ridiculous arguements about quality of service and monopoly.

  • sanjay mehra

    The real problem is always that there are only two main players because the Governments of most nations somehow make sure that only two mainly monopolistic communications carriers are main players in the market. It used to be the same in India, till wireless became the mainstay of communications and broadband. Suddenly, we have options which we did not have a couple of years back. The same will happen to the broadband and convergence industry. At this moment, the carriers can ask for the moon without giving anything in return, but trend of technology is going to be more and more wireless in the future. We may even see a future in which converged devices are beamed directly from a satellite along with broadband, thus ending all these ridiculous arguements about quality of service and monopoly.

  • Ryan Radia

    sanjay, you make a good point about the importance of wireless services. Although duopolies still function relatively well, as Hance has explained in many posts, I still think competition is distorted by the lack of new entrants. But this will change as spectrum is liberalized and more broadband-grade wireless connectivity is available. In the meanwhile, though, we should let telcos and cable companies compete on a fair footing.

  • Ryan Radia

    sanjay, you make a good point about the importance of wireless services. Although duopolies still function relatively well, as Hance has explained in many posts, I still think competition is distorted by the lack of new entrants. But this will change as spectrum is liberalized and more broadband-grade wireless connectivity is available. In the meanwhile, though, we should let telcos and cable companies compete on a fair footing.

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