A Shot in the Arm for Telephone Competition

A Shot in the Arm for Telephone Competition

A Shot in the Arm for Telephone Competition

Moneybox
Commentary about business and finance.
Jan. 25 1999 6:25 PM

A Shot in the Arm for Telephone Competition

It wasn't the most resounding victory for the forces of competition, but today's Supreme Court ruling on the regulation of phone prices should take us a few steps closer toward dismantling the monopolies the Regional Bell Operating Companies (RBOCs) continue to hold over local phone service. In a complicated three-part ruling, the Court reversed a lower-court decision and held that the Telecommunications Act of 1996 gives the federal government, and not state regulatory authorities, jurisdiction over the Baby Bells.

Advertisement

This matters because the current FCC has been an aggressive advocate of the deregulation of local phone service, which in concrete terms would require that the Baby Bells open their existing networks to competitors. By contrast, the general assumption--proved accurate in some places, and somewhat shy of the mark in others--is that state regulatory authorities are more likely to protect the Baby Bells, with whom they've been working forever, and that they would be less inclined to push aggressively for genuine competition.

In effective terms, what the decision means (although, incredibly, the Baby Bells could still challenge the substance of FCC regulations in a lower court--isn't the Supreme Court Supreme?) is that the regional Bells can be compelled to lease their lines to potential competitors, which will include not only smaller companies like RCN and Teligent but also heavyweights like MCI/Worldcom. (Even AT&T may get in the act, although its acquisitions of Teleport and TCI suggest a different strategy.) And that, in turn, could very well mean lower prices. Aside from cable companies, there has been no more secure monopoly than the RBOCs, which helps to explain the high prices and mediocre service they offer.

In the wake of the AT&T bustup in the early 1980s, we heard a lot of complaints about how things were better when there was no choice and how the court's decision had been unnecessary. But long-distance rates have fallen 70 percent since then, and are likely to fall even further, and there's little evidence that long-distance companies offer worse service than the old Ma Bell. If anything, the one place where things haven't gotten better and may even have gotten worse is in the field of local service, which is of course run by the true descendants of the old AT&T.

The virtues of competition can be exaggerated, I suppose, but not by much, and certainly not in the field of telecommunications. The Baby Bells have been slow to roll out new technologies--why, for instance, is ADSL Internet access still just a dream in New York City?--slow to cut prices, and fast to try to cut in on the lucrative long-distance market. Today's decision won't, interestingly, have as massive an impact as one might once have imagined, since state regulatory authorities in some areas have been tough on the RBOCs and since the Baby Bells' competitors have circumvented the monopoly on lines by building their own networks. But the decision is nonetheless genuinely important. The spirit of the Telecommunications Act of 1996 was a good one, but the letter of that law is often confusing. Giving the FCC more authority to enforce it is the best way to make the spirit of that act a little livelier than it has been.