Editor’s note: Mallory Factor is chairman of the Free Enterprise Fund, a lobbying organization in Washington for the passage of legislation that will promote economic growth, lower taxes, and limited government.
WASHINGTON,Imagine a world of true telecommunications convergence. You get everything you want-video, voice, data, amazing futuristic services-from one company at a great price. You can choose between at least two competitors offering these incredible packages, competing on price, quality, and convenience.
Does that sound good? The Supreme Court, in its decision in the Brand X case, brought us one step closer to that world.
Brand X is a real company, based in Santa Monica, Calif., that sued to block this vision of the future. The ultraliberal Ninth Circuit ruled in Brand X’s favor in 2003, but the Supreme Court ruled against them on June 27. The Supreme Court ruled that cable companies should not be forced to open their networks to competitors at below market rates. The decision turned not on any question of principle, but on the arcane distinction between an “information service” and a “telecommunications service” in the convoluted Telecommunications Act of 1996.
Fortunately, the court deferred to the Federal Communications Commission on this issue, and the FCC has rightly opted for light regulation. It should come as no surprise that technology stocks cheered the Brand X decision by staging a huge rally that erased their big losses from earlier this year. The beaten down technology sector will continue to roar back if the regulatory environment continues to improve.
Ruling is ‘Great News’ for Lagging US
With the maturing in recent months of managed Voice over Internet Protocol (VoIP), the Bells’ traditional voice service domain is now wide-open to convergence-based competition. The Supreme Court decision in the Brand X case is great news because it means the fast-innovating cable industry won’t be hampered in the way that the phone companies have been by line-sharing mandates, access charges, and universal connectivity fees. But it also highlights the urgent need for broader regulatory reform to make video as competitive as voice is now becoming.
The telecommunications industry is the critical infrastructure of our modern economy. Unfortunately, outmoded regulations are handicapping the sector, placing us embarrassingly far behind other developed countries in areas like broadband deployment. The most recent broadband data from the International Telecommunication Union show that we’ve now fallen to 16th in broadband penetration-well behind countries like Canada and Denmark, and now trailing Israel and Finland, too. Even France, once a technological backwater, doubled its broadband penetration last year and is now ranked 17th, close to passing the U.S.
We’re lagging behind because the current regulatory environment gives phone companies powerful disincentives to make infrastructure investments. Some experts have estimated that more than $100 billion in such investments could be unleashed by deregulation.
Deregulation Is Crucial
The most significant of these roadblocks is the antiquated patchwork of regulations and fees that prevent the Bells from offering video services. As the highest-value telecom service, video is a key driver of infrastructure deployment. But local franchising rules, which are a relic from a time when towns granted exclusive franchise rights to cable companies, are a huge regulatory barrier that prevents the phone companies from offering video, the last step to full convergence and true market competition.
Congress should use the Brand X decision as a springboard for broad deregulation that would drive full convergence, allowing the Bells to offer their own comprehensive service packages to compete with the cable companies. Cable and telephone companies should be allowed to compete across the board. As technologies have grown more capable, these once distinct sectors have now merged to the point that the remaining barriers to full convergence are regulatory, not technological.
Legislation introduced recently by Rep. Marsha Blackburn (R-TN) and Rep. Albert Wynn (D-MD), known as the Video Choice Act, would take another huge step in the right direction. The bill would allow service providers who already have franchises to run wires to people’s houses, mainly phone and power companies, to offer video services under their existing franchises.
This would mean real consumer choice for video services almost immediately, instead of ten years from now or later.
Ultimately, the 1996 Telecom Act needs to be comprehensively overhauled to place all of the telecom companies, however they deliver their services, on a level playing field. This would unleash a wave of new investment, fuel the ongoing tech stock rally, create hundreds of thousands of new jobs, and make us more competitive internationally. It would also make true convergence a reality, improving the quality of life for all Americans.
Free Enterprise Fund: www.freeenterprisefund.org/