FCC Should State the Obvious: Telephone Service Is Not a Monopoly

by on December 19, 2012 · 0 comments

Given the rate at which telephone companies are losing customers when they cannot raise prices as a regulatory matter, it is preposterous to continue presuming that they could raise prices as an economic matter.

Today, the United States Telecom Association (USTA) asked the Federal Communications Commission (FCC) to declare that incumbent telephone companies are no longer monopolies. Ten years ago, when most households had “plain old telephone service,” this request would have seemed preposterous. Today, when only one in three homes have a phone line, it is merely stating the obvious: Switched telephone service has no market power at all.

The FCC already knows that plain old telephone service is no longer a “dominant” service (“dominance” is more likely when a service has a market share exceeding 60%). Last year, the FCC’s Technological Advisory Council found that the legacy, circuit switched telephone network “no longer functions as a universal communications infrastructure” and telephone service “does not provide anything close to the services and capabilities” of wired and wireless broadband Internet access services.

The FCC also knows that outdated regulations premised on the historical primacy of telephone networks are discouraging investment in the modern Internet infrastructure that is necessary for the United States to remain competitive in a global economy. To its credit, the FCC has begun “eliminating barriers to the transformation of today’s telephone networks into the all-IP broadband networks of the future.” Based on an idea pioneered by Commissioner Ajit Pai, the FCC recently formed an agency-wide Technology Transitions Task Force to provide recommendations for modernizing our nation’s communications policies.

The USTA petition has a very limited scope compared to the TTTF. The petition does not include broadband or “special access” services and does not seek to deregulate telephone service. It asks only that incumbent telephone companies providing plain old telephone service receive regulatory treatment similar to that received by wireless providers, cable operators, and VOIP providers. Today, telephone companies designated as “dominant” are subject to unique regulatory requirements regarding pricing, tariff filings, and market entry and exit that are inapplicable to their competitors.

These unique regulatory requirements are premised on the presumption that telephone companies have “market power” – i.e., that they can raise prices without losing customers to competitors. Telephone companies may have possessed such market power during the Carter Administration when the current regulatory regime was adopted. But today, incumbent telephone companies whose prices are capped by the FCC are losing 10% of their customers to competitive alternatives every year. Given the rate at which telephone companies are losing customers when they cannot raise prices as a regulatory matter, it is preposterous to continue presuming that they could raise prices as an economic matter. It is more realistic to presume that plain old telephone service will lose customers at any price as consumers migrate to services with superior capabilities.

Though the relief sought by USTA is a small step toward regulatory modernization, it is an essential one that the FCC can take immediately under existing precedent. In 1995, the FCC concluded that AT&T should be reclassified as “non-dominant” in the “long distance” market after its share of that market declined from approximately 90% to 60% during the preceding decade. Last October, the FCC eliminated the presumption prohibiting cable operators from entering into exclusive programming arrangements with their affiliates because cable’s share of the video market had dropped from approximately 95% to 57% since the presumption was adopted. It is obvious that switched telephone service – with a national market share that is approximately half that of the long distance and cable services the FCC found lacked market power – should receive similar treatment.

There is nothing more deceptive than an obvious fact.” It is obvious that switched telephone services are no longer capable of supporting the economic and social goals of our nation. It is also obvious that our future success depends on a rapid transition to an all-Internet infrastructure.

The USTA petition asks the FCC to state the obvious while the FCC’s new Task Force conducts a more holistic review of our nation’s outdated communications policies. Eliminating the presumption that plain old telephone service is “dominant” would promote confidence for private investment in Internet infrastructure and bring us one step closer to realizing the full potential and opportunity of Internet transformation for consumers. That’s progress that benefits everyone.

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