Telecom Reform Should be Simple, BellSouth CEO Says

Ackerman said a Telecom Act rewrite should look to sunset unbundling requirements for the local loop, which would be replaced by a regime that favors commercial agreements for access to the last mile. As competition moves to wireless and other forms of distribution, there likely won’t be “much clamoring for copper,” he said. Ackerman proposed a system where regulation is broken into 3 areas: (1) Retail regulation, where basic local service rates would remain regulated, but if a customer added other services features, they wouldn’t be regulated. (2) Wholesale regulation, where nonrural phone companies should be limited to requiring unbundled local copper loops at negotiated rates. “This obligation also should sunset after a few short years in order to facilitate commercially negotiated network access arrangements,” Ackerman said. (3) Public safety, where 911, Communications Assistance for Law Enforcement Act (CALEA) and consumer protections are enforced on all carriers. Ackerman stressed that these requirements should be “baseline” and avoid any “free rider effects, where one group of competitors can palm off responsibilities and costs on another group.”

Ackerman also emphasized the goal of preserving the Universal Service Fund (USF), an element that will almost certainly be present in any telecom reform bill. The FCC should broaden its contribution base and collect fees in a “competitively neutral manner,” he said. General tax revenue should also be used to partly fund the USF, and so-called “nuisance charges” should be rolled back. “That could be a win-win for everyone,” he said: “The industry would get a predictable base of universal service support, and consumers would see changes in their bills, too.” Ackerman emphasized that telecom taxes far exceed taxes on other products or services, sometimes by as much as a factor of 4.

Ackerman also laid out recommendations for intercarrier compensation. The FCC should adopt a uniform, federally administered compensation mechanism that should “fairly compensate providers for use of their networks, while minimizing arbitrage opportunities,” he said. Facilities-based carriers should be required to interconnect directly and to provide transiting service to other facilities-based carriers at rates and on terms and conditions set through commercial contracts or FCC- developed default principles, he said. The FCC’s authority over interconnection and transiting should sunset after a few years, and an industry group would then be responsible for updating default interconnection guidelines as needed, Ackerman said. Dispute resolution would be accomplished through mediation or binding arbitration, he said.

Crandall Says UNE Sharing Was Drain on Economy

The economy lost far more than consumers gained as a result of the effort required by the Telecom Act to increase telecom competition by requiring ILEC sharing of network elements, Brookings Institution Senior Fellow Robert Crandall said in an earlier panel. Crandall said a drop in consumer costs of about 15% since 1997 had come at a “huge cost” to the economy. CLECs have gained little in return for their $55 billion investment in capital facilities 1996-2003, he said. These costs reflect losses to the economy unless offset by innovative new services, and there’s little evidence of that, he said, outlining recent research. Many CLECs have gone out of business and “the capital market’s forecast for the survivors is bleak,” Crandall said. “The market doesn’t see CLEC [start-up costs] as being recovered,” he said. His conclusion: “The Telecom Act created competition but not lasting or meaningful. The benefits were swamped by the resource costs of it by largely failed CLECs.”

Georgetown U. Prof. John Mayo said he’s “a bit skeptical” of Crandall’s results. For example, he said, “millions of consumers have switched carriers” because they gained value or for “the innovative services [that Crandall’s research] assumes are nonexistent.” “The benefits of competition are incontrovertible” and failure is probably due to a basic economic principle, he said: “Monopolists don’t readily cede their monopoly power.” Mayo said he does agree that “the current process has shortcomings” and legislative remedies are needed. He recommended: (1) Fixing the “atrocious” universal service policies. (2) Fixing access pricing, still “laden with subsidies.” (3) Sharpening and elevating “the prospects for antitrust liability as a tool to promote competition in the telecommunications industry.” Mayo said that without effective antitrust liability, “regulation proves ineffective in advancing competition.”

Economist Harold Furchtgott-Roth said Mayo’s recommendations for legislation may be “very much on point,” but “I'm not convinced that anything would have changed” had those recommendations been incorporated in the current Telecom Act. The problem is with enforcement of the Act, not its language, he said. Furchtgott-Roth said Crandall’s conclusions are “difficult to escape” -- that “there have been substantial costs to the economy over the past 10 years” and “maybe some head scratching over what we have to show about it.”

USTA Pres. Walter McCormick said only one paragraph is needed to fix the Telecom Act: “Where the consumer has a choice, the government gets out of the way.” He said the Telecom Act’s reforms were “an entirely failed experiment” that he hoped wouldn’t be repeated in any other economic sector.