Editor’s note: Braden Cox is Technology Counsel for the Competitive Enterprise Institute.
WASHINGTON,In the policy world, regulatory change involves building a consensus.
Showing that current regulations are unfit for the task requires numerous briefings and coordinated events. Proving the need for telecommunications regulatory reform, however, is rapidly reaching popular accord. The market has changed dramatically since the Telecommunications Act of 1996, a transformation that has accelerated over the last year. An emerging national consensus is coming to grips with the reality of the communications market and the need for regulatory reform.
The reality of the communications market
Responding to new technology and consumer demand, the telecom market surpasses whatever legislators could have envisioned in 1996, as telecommunication companies are implementing new business models. The legal distinctions maintained in telecom law don’t make any sense in light of the reality of the communications marketplace.
AT&T, for years known as your local phone company, is changing its focus away from providing “traditional” phone service. AT&T made an announcement recently that it will stop investing in residential local and standalone long distance phone service. Instead, it will put its resources into voice-over-IP (VoIP), where it recently extended its offering into 100 major markets in 32 states. This is not necessarily a statement of defeat by AT&T — rather, it’s a declaration of its vision for the future of communications.
Likewise, Verizon Communications is the first of the former Bell companies to deploy a nationwide consumer VoIP service. Along with AT&T, it is now competing against other, smaller companies such as Primus, Skype and Vonage.
Wireless continues to grow as a substitute for traditional land-line phones. Verizon’s just released second-quarter financial data shows that the majority of its revenue came from wireless, data and long-distance services. The number of its residential phone lines and revenue from traditional residential service is declining.
BellSouth, SBC and Verizon are investing huge amounts of capital into fiber, potentially offering consumers a media triple-play — telephone, Internet and television service. At the same time, cable TV providers are competing against the phone companies by offering telephone service in addition to Internet and television.
A state legislative group reacts to market developments
Even state legislators recognize the dynamic telecommunications market and acknowledge the need for regulatory change. At its recent annual meeting, the National Conference of State Legislators (NCSL) consented to a telecom policy position that is remarkably market-focused. The telecommunications policy committee report acknowledges that current regulation has hurt infrastructure development. It recognizes that the innovation and convergence of technologies creates cross platform competition, and that it was the market that created this competition, not the 1996 Act. The NCSL advocates a policy framework that “allows consumers and the marketplace to determine winners and losers” instead of government regulation.
The report still advocates for a significant role for the states in telecom policy, and for a federal act regulating all providers of telecommunications (i.e. cable and VoIP) in the name of regulatory parity, but even on these issues it seems to call for “similar and minimal” regulation.
This is positive development, as state legislatures will hopefully begin to reign in their state telecom regulatory commissions that have been all too eager to create regulations that have ignored marketplace realities and hindered investment.
What will be the Congressional response?
How will Congress respond? Congress could operate in a piecemeal fashion, addressing telecom policy issues based on technology or service sector. Or will it consider a comprehensive overhaul of the Communications Act of 1934 (as amended by the Telecom Act of 1996)? The VoIP bill sponsored by Sen. John Sununu (R-N.H.) — the “Regulatory Freedom Act of 2004” — is an example of a piecemeal approach, as it originally called for a light regulatory touch for VoIP and preemption of state and local governments. Senate Commerce Committee amendments to this bill have effectively killed it, expanding what was once a very narrow bill to include obligations for state regulated access charges and universal service taxation.
From a public policy perspective, a revamp of the Communications Act is necessary. But if it is easy to bloat a narrow VoIP bill (when many in Congress already agree that Internet telephony should be lightly regulated), how weighted down will a broad sweeping act become if pro-regulatory forces get their way? The fear is that backyard politics, not sound policy, will drive a new communications bill.
So we all mostly agree that the market is changed and telecom laws need some attention. Now it’s time to start building a new consensus — that no matter what approach Congress takes to reform telecom, deregulation must prevail.