SEIDENBERG BLAMES REGULATORS FOR TELECOM'S ECONOMIC SLUMP
“Unhealthy” telecom industry is unable to gain investors’ confidence and good part of blame goes to regulators, Verizon CEO Ivan Seidenberg said Thurs. in hard- hitting speech at Progress & Freedom Foundation lunch. “You know something’s wrong” when regulatory policy continues to favor CLECs after “a large CLEC fabricates billions of dollars,” he said in apparent reference to WorldCom. “Uneconomic regulation” has turned telecommunications from “an economic engine to an economic anchor, weighing down” entire economy, he said. He said he was “somewhat encouraged” by FCC’s proposal to let wireless companies opt out of bids in re-auction for Nextwave spectrum because “removing this $16 billion overhang on the wireless industry will provide a welcome jolt of economic stimulus.” However, Seidenberg said he was “wary” of bankruptcy process’s returning failed companies to marketplace with debts forgiven. “Verizon and other established companies should not be forced to subsidize failed companies.”
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FCC could do 2 things to ease problem perceived by Verizon, Seidenberg said: (1) FCC’s Triennial Review gives agency chance to reexamine mandatory unbundling and TELRIC pricing for them. Also, FCC “needs to consider a sunset provision for UNE (unbundled network element) leasing by competitors so UNEs were “used as intended, as stepping stones” to building their own facilities-based networks. (2) Agency should remove UNE sharing requirements for ILECs’ broadband networks “to incent investment.” With pending FCC proceedings on UNEs and broadband, this year is pivotal in getting industry back on target, he said: “Opportunity doesn’t knock very often in the world of telecom deregulation -- maybe once or twice in a decade -- it’s knocking now. It is time to see if the Bush Administration, [FCC] Chairman Powell and the FCC truly believe in the discipline of the free market or the heavy hand of regulation.”
Issue is getting critical, Seidenberg said, because: “The cold hard fact is, under today’s uneconomic system, investment in the domestic telecom part of our business is a difficult proposition.” He recommended that “redundant federal-state regulation” be done away with. In answer to later question, he said regulatory policymaking should be shared between 2 jurisdictions “more evenly,” rather than have both doing same thing -- for example, both overseeing prices.
Most of Seidenberg’s comments have been expressed before by him or other Verizon officers but rarely with such vigor. His appearance capped several weeks of stepped-up FCC lobbying by both sides of industry on UNE issue. Panel featuring Seidenberg and group of analysts followed, reflecting similar strong criticism of FCC policy. Precursor Group analyst Scott Cleland said use of UNE platforms (UNE-P) had led to “fraudulent competition based on pure regulatory arbitrage… I always thought markets were supposed to set prices or have some influence on setting prices.” But UNE-P is “backward construct that petrifies new technology,” he said. Cleland said current regulatory structure had placed industry on “cotton candy diet… Because competition is so sweet upfront… all we want is lower prices. We don’t care about our diet. At first it’s very tasty and sweet and then we realize we can’t live on cotton candy.” As result, he said, “we've probably endangered the next generation” of technology development. “We've gotten this thing seriously wrong.”
Legg Mason analyst Blair Levin, who worked at FCC when UNE rules were implemented, was more reserved in his criticism of regulatory policy, saying Telecom Act hadn’t given clear guidance on how to accomplish sharing of Bell networks. Levin said he expected UNE-P to be “less of a long-term issue for the Bells” as they received Sec. 271 entry throughout their territories. Real problem, rather than regulatory issue, is that “I do not see new products putting new growth into the sector,” Levin said. Bret Swanson of Gilder Technology Report said sector wouldn’t come back without development of new technology -- “that’s how growth comes about.” He said effect of regulation was clear in fact that equipment makers Nortel and Lucent, which concentrated on equipment for regulated networks, were in trouble while Cisco, which concentrated on unregulated enterprise networks, was doing well.
Seidenberg said it was frustrating that investment dollars until recently went to, in his view, any entrepreneur that asked, while Verizon couldn’t get funding because govt. rules favored competitors. “There is no question that people put money into [competitors'] business plans because the government was going to be friendly,” he said.