This morning, the U.S. Supreme Court announced it would let the FTC’s “do not call” registry stand. It had been challenged on first amendment grounds–the basic problem being that it gave special exemptions to political candidates and charitable groups–even though their calls can be just as annoying at dinnertime than those from businesses. It was an uphill battle legally, and the Supreme Court didn’t agree with the argument. As the election approaches, then, batten down your phones for a flood of unsolicited calls from you friendly local candidates.
Pricing goods and services that are rapidly becoming commoditized presents a challenge to sellers. How to differentiate your product vis a vis competitors? Often this involves bundling, but can take on many different forms of price differentiation schemes enforceable by contract law. Most people, including most regulators, have no clue about how hard it is to price a product and get it right. The California Public Utilities Commission ruled last week that Cingular’s pricing decision was wrong, not as a matter of market preference, but as matter of law. It imposed a $12.14M fine on Cingular for unfairly slapping customers with “early termination” fees. Here’s a Washington Post article on it.
These termination fees are actually quite consumer friendly. They are the customer’s acknowledgement of the fact that a large portion of a carrier’s costs are upfront at the beginning of the contractual relationship. The “free phone,” setting up the user’s billing account, assigning the phone number – a mobile carrier could charge for each individually, then we’d hear the consumer complaints! Otherwise, it’s a reasonable bargain for a consumer to limit his or her freedom for a year or two in exchange for the benefits of a bundled product arrangement.
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The WSJ had a good piece yesterday on how telco and cable companies have morphed into the same thing (you’ll need a subscription to see it). Here’s a graph:
In Omaha, Neb., cable giant Cox Communications Inc. has toppled the regional Bell and become the area’s largest phone company. Over in New York, Cablevision Systems Corp. has signed up 115,000 phone customers.
Meanwhile, in the Southwest, telecom titan SBC Communications Inc. has landed 120,000 subscribers for the satellite-TV service it launched in March with EchoStar Communications Corp. Verizon Communications Inc. has built a fiber-optic network in a Texas town and will use it to offer “cable” TV service this fall.
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The U.S. isn’t the only country struggling with decisions on how (or whether?) to regulate VOiP. Internet Daily reports today that OfCom, Britain’s telecom regulator, opened an inquiry on the subject Monday. It’s “initial views” are that the service needs a light touch. It argued against requiring standard service features, saying consumers should be able to make informed decisions for themselves about what they want. Perhaps surprisingly, it even argued against mandated “999” service (that’s British for “911”). Seems like good news from old Europe.
There’s a whiff of the bizarre in the FCC’s new unbundling decision (see Wayne’s excellent post below). Let’s recap: in 1999, the Supreme Court threw out the FCC’s first stab at unbundling rules. The Commission changed them slightly, but the DC Circuit threw these out in 2002. The FCC’s third try was also thrown out in March. A clearly agitated court gave the FCC a deadline: 60 days to fix the problems, or the rules are gone. That seemed pretty clear. But the process goes on!
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Last Friday the FCC quietly released the interim rule on unbundling and UNE-P pricing, claiming that if they failed to act, the $127 billion local telecommunications market would be placed at risk. Yet it’s not clear how the interim rule calms this market. The rule extends the current UNE-P price freeze for six months, which is longer than the local phone companies would like (they had agreed to freeze rates through the end of the year). It also provides for an additional six-month transition period, should a final rule not be ready. USTA and two local phone companies have already asked the court to intervene and force the FCC to comply with previous decisions. They are requesting permanent rules from the FCC by the end of the year. It seems this latest effort does little to resolve the uncertainties surrounding this market. On a positive note, the FCC does reiterate support for facilities-based competition, a goal that will be pursued in the final rule (whenever that happens).
Today at a conference in Aspen, FCC Chairman Michael Powell made some thoughtful comments including this one: “VOIP is the killer app for legal policy change.” What he meant is that the technology forces regulators to see “telephone service” in an entirely new light. Let’s just hope policymakers are smart enough to see that convergence of technologies means changing regulations to fit tech rather than trying to force tech into an old, outdated, and harmful framework.
State Public Utilities Commission meetings are usually fairly boring affairs, but at last Thursday’s CPUC meeting, I was surprised to see a packed room and grand theatrics over UNE-P rates in California. I know what you’re thinking–didn’t a DC Appeals Court invalidate the UNE-P regs? Well, yes, but California is going ahead anyway as everyone is still waiting for new FCC rules and California is two years late in setting them in any case. The CPUC’s administrative law judge suggested allowing SBC to raise rates only $0.25–enough to cause the labor unions to get wound up. And, let me tell you, labor leaders are really good at getting their message across LOUD and clear. If telecom wasn’t such a mess, the theatrics might have been more fun. If you want to learn more about this issue, see my weekly column here.
Some economic insight to the post by James on intercarrier compensation is found in a paper by Jay Atkinson and Chris Barnekov, senior economists at the FCC. Don’t let the weighty title of the paper distract you, “A Coasian Alternative to Pigovian Regulation of Network Interconnection” is based on a simple core concept – well-defined property rights. The paper explores what default rules might be appropriate for intercarrier compensation so that interested parties in the market, and not the FCC, can work out efficient resolutions. Earlier this week, the authors received the third annual FCC “Excellence in Economic Analysis” award for their work on this paper. Whatever the resolution regarding the reform plan recently submitted by the Intercarrier Compensation Forum, it will be analyzed in light of the Atkinson and Barnekov analysis. Their proposal:
“The rule is first to identify those facilities that are solely incremental to interconnection, then to split the cost of providing these facilities equally between the two carriers. Each carrier would recover these and all its other costs from end user customers, not from interconnecting networks. For several basic types of networks, we demonstrate below that this simple default rule results in efficient, competitively neutral interconnection. We argue that this result can also be generalized to more complex networks. We believe this rule provides a conceptual solution to the problem of interconnection between dissimilar networks in the presence of market power, and that it provides a default that can enable interconnectors to reach competitively neutral and, with respect to interconnection, efficient outcomes.”
And hey, you have to like any paper that begins with this quote from Ronald Coase:
“The kind of situation which economists are prone to consider as requiring corrective Government action is, in fact, often the result of Government action.” – R.H. Coase, 1960
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.