Sunday, February 23, 2003

Telcom fiasco

Michael Powell's move to roll back TA96 failed, when the FCC passed a convoluted set of measures that will do nothing to help the telco sector. The Telecommunications Act of 96 tried to create "service based competition" by forcing regional Bells to lease their lines to new entrants at low rates. This had the predictable effort of decreasing investment in physical plant because the Bells could not charge for it. The resulting fall in demand has eviscerated the telecom sector over the past few years.

Powell wanted to shift from service based competition to facilities based competition. So instead of Sprint, AT&T, and Verizon trying to get your local phone business, wireless ISPs, the cable company, the electric company, and the phone company would compete for your connectivity needs. Historically, the Faustian bargain between government and telco has been "you provide these services and we will protect your monopoly". Powell wanted the new bargain to be "enjoy your monopoly on the pipe to the home, but now everyone with a pipe to the home can offer whatever they want down it" believing that, in the packet switched world, any pipe can be a phone, TV, radio, etc.

TA96 was also very ambiguously worded, resulting in fierce litigation (which also kills investment dead). This new act is likely to be the same.

Public opinion on telco regulation is also muddled. This appropriately titled article in the same breath complains that 1) incumbents should not be allowed to charge prices for their services, 2) incumbents are not investing enough in new technology, 3) entrants, who don't invest in new technology either by simply resell existing services, are going to go out of business and 4) small businesses aren't protected.


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