The need for major change was long
overdue. In fact, the FCC chided Congress in the Second Computer Inquiry (1982) for
failure to overhaul the Telecommunications Act of 1934, and issued mandates in the hope of
spurring Congressional action. Instead, the result was the Bell System breakup of 1984, an
effort lead by the Justice Department. Congress refused to act. With that track record, it
is not surprising the new law perpetuates Congress' inability to legislate decisively. By
foisting the Decency Act on the American public, Congress has created a forum for an
emotional issue that grabs everyone's attention, knowing that the provisions will not
stand up to legal challenges. In fact, the new law established a judicial panel to
determine the constitutionality of the Decency Act. If lawmakers did their jobs, a new law
would not require a built-in judicial review; lawmakers are paid to make intelligent, wise
decisions, not to pass the buck.
The Decency Act creates, in the minds
of some, a moral high-ground, presumably to protect America's youth. Who can argue with
that? Just about everybody concerned, because it has become the central issue of debate,
as planned. However, the Decency Act, one way or the other, has very little to do with the
real issues facing consumers and their public communications infrastructure. How much
choice will consumers, in urban, suburban and rural areas have in the future? Will there
be real market place competition? Will consumers benefit from lower rates? Will there be
Universal Service, a crucial component of an egalitarian society? Despite having tried to
cover their tracks with decency provisions, Congress has not set objectives for the
nation's public networks.
Make no mistake, this is historic
legislation, despite its lack of vision. America will live with the consequences, good,
bad or indifferent, for many years to come. Having taken more than a decade to do
something, it is unlikely Congress will revisit the issues for many more years. Therefore,
some historical perspectives are in order, especially since prior policy has given America
the best communications networks in the world, and the leadership position for the future.
Universal Service for public
communications was a founding principal of this nation. In 1753 Benjamin Franklin became
deputy postmaster general for the American colonies. At that time, weeks and sometimes
months, were required for mail to travel by stagecoach from one part of the colonies to
another. Franklin understood the need for reliable, economical mail service, and
standardized the weight and distance postage rate schedule that existed. He also put a
bookkeeping system into every post office, and regular weekly deliveries became standard
procedure. Franklin's programs were so successful, that when independence came, postal
service was written into the United States Constitution. By 1812, more than 50,000 miles
of post roads were in use.
Private enterprise played a role as
well. Pony Express was established in 1860 as a way to get mail to California faster than
postal service. But it was quickly displaced in 1861 by modern
electronics-transcontinental telegraph. By the end of the nineteenth century, telephone
companies arrived. Although Bell is the recognized inventor, it was Theodore Vail, the
leader of AT&T, who had the vision for Universal Service. The phone would be easy to
use, affordable for every person, and ubiquitous. All he asked for in exchange was a
government mandated monopoly. So was born the Bell System. As noted above, the dismantling
of that monopoly began over fourteen years ago by actions of the FCC and then the Justice
Department.
So what is really going on today? One
way to find out, is by comparison with other examples of regulatory devolution. The only
recent deregulation models to follow are the Airline and Banking industries. Each has some
similarities to Telecommunications. In terms of the service provided, Banking is the more
likely model since the service provided is less tangible, similar to telephone service.
Airlines, however are more like telephone companies in the need to make large capital
outlays before they can provide the service. Where has deregulation taken these
industries?
In Banking, deregulation began a
consolidation trend that continues today. Branches are closed and many jobs are lost. And
while there seems to be a lot of competition among big banks, has the consumer benefited?
Most credit card interest rates are still in the 17-19% range, despite several years of
low inflation and a drop in all other rates. Furthermore, there are less neighborhood
branches and less choice for many. It is hard to see how this has benefited the consumer,
other than those with stock in banks.
The Airline story is a little
different. Indeed, here the little guys became upstarts and competition benefited
consumers; airfares dropped dramatically; so low that many airlines went bankrupt.
Consolidation occurred, and as a whole, the industry has lost money for many years. Good
for consumers in the near term, but not necessarily the way to build a vital, national
industry.
So how has telecommunications
deregulation faired since the Bell System break-up? The experts predicted competition
would reduce phone rates. In reality, it was merely a new form of regulation which shifted
costs away from business, and to the consumer. While rates did go down for business users,
they went up for residential customers, which make up 60-65% of telephone revenues in the
country. That is, the largest group of users saw their rates go up. Now that local service
will be deregulated, the same is likely to happen. The large regional Bell companies will
cater to big business with volume discounts, since a single large account can be a
significant loss of annual revenue. On the other hand, a single consumer account is
insignificant to the $15 billion each regional telephone company collects yearly. The vast
majority of consumers are slow to change their ways, nor will they have much choice in the
near future. Therefore, the Bell companies do not fear a serious loss of consumer revenue.
Potential competitors in the local service market are likely to "cream skim"
business accounts, as MCI did in the seventies.
Real competition in the consumer market
requires a huge investment, first to build the appropriate infrastructure (it is a lot
more than hanging wires on poles), and then to create a mass marketing campaign. The
result will probably be a silent truce between local telephone and cable companies, and a
battle for local service between the regional Bell companies and the long distance
providers: AT&T, MCI and Sprint.
Supporters of local deregulation argue
that dropping the barriers among potential competitors will create more choice and
competition for the average consumer, thus lowering rates. That is not likely to happen
during the next five years. In fact, both telephone and cable companies will probably
raise rates for consumers. That is the lesson of history. Nothing will stop it since there
will not be significant competition in the consumer segment for local services. The
Telecommunications Act takes care of that, replacing rate regulation with free market
forces.
The majority of consumers do worry
about rate increases. That is why everyone in Congress got together to assuage public
concerns. The vote on this bill was an unusual show of bipartisan support, but that does
not make it the right plan. To de-focus people from the real issues, and to create a
perception of diligence on Congress' part, we were given the Decency Act. It is a
provision that looks good politically but ultimately will do very little except waste
taxpayer money, time and attention on a legal battle. Congress is clearly unable to
grapple with the tough issues facing our society. Instead of debating the issue and
devising a law consistent with the Constitution, Congress threw up its collective hands
and threw the issue to the judicial branch.
When we are told that this new set of
laws will encourage competition to the benefit of consumers, let us understand that it
encourages competition among very large corporations. AT&T and the local Bell
companies are all Fortune 50 companies. While elected representatives frequently extol
small businesses as the engines of job creation, this law does little to encourage new
entrepreneurial stars, as Apple and Microsoft once were. For example, in the regulated
world, and certainly prior to the Bell breakup, AT&T could not offer free Internet
service as they just have. While AT&T is to be lauded for a program which can truly
bring Universal Service to the Internet, it will effectively eliminate many "mom and
pop" Internet access providers that have sprung up around the country.
So here is what we, as consumers, are
likely to see over the next several years:
- Cable TV rates will rise.
- Local telephone rates will go down for
business customers.
- Local telephone rates for consumers will
stay the same or rise.
- There will be consolidation among the
large players in their traditional segments.
Beyond that, the crystal ball is
clouded by Congress' lack of vision and obfuscation of the important issues.
The bottom line is that real
competition and new innovative services will not arrive for many years. When they do, very
large carriers will be the only service providers. Innovative services and price
competition in the consumer segment will first occur in the markets that are upper and
middle class on the socio-economic scale. Universal Service will become the lowest common
denominator, the life-line, for communications service. And by the year 2000, the Decency
Act will be forgotten.
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