Separate & Unequal

Posted: 2/2004

Separate & Unequal

It has been
20 years since the breakup of the Bell System. Equal
access and Bill McGowan are words that rarely enter our vernacular
today, and are not likely to end up on an episode of VH1s I Love the 80s
for their nostalgic value. Many of us, however, would welcome a return to the
clarity and consistency of the original competitive landscape carved out by
Judge Greene.

Competition in the long-distance industry emerged, and
consumer prices dropped exactly as planned. By all accounts, the original
breakup scheme was successful. Its gains were to be replicated, it was hoped, in
the local market through the Telecom Act of 1996. Yet today, local service
competitors are more likely to be substitute or replacement providers
wireless or Internet-based than they are to be like providers.

Todays telecommunications landscape is littered with
imbalances resulting from regulatory decisions, subsequent to the original
breakup, that have consistently favored one form of company or product
over another.

• AT&T Corp. was forced to adhere to competitive rules;
  the RBOCs were not.
• The Bells have gained access to long distance despite a
  lack of substantive competition at the local level.
• Long-distance companies pay for access to local networks;
  ISPs do not.
• The RBOCs have to share their broadband networks; cable
  companies do not.

The list goes on and on, and each individual discrepancy has
played a key role in painting todays twisted and complex regulatory picture.

While some decisions have served to undo the effects of the
original Bell breakup, such as allowing the seven RBOCs to consolidate to four
regional powerhouses, others have resulted in similarly deleterious unintended
consequences. For example, providing the public with affordable access to
information was at the heart of decisions not requiring ISPs to pay for access
to local networks. But IP-based technologies since have emerged that allow ISPs
to provide local telephone services, effectively creating competitors that use
others networks to provide telephone services without paying for access to
those networks.

While we can debate ad nauseam the whys and wherefores of each
situation, the cumulative effects of these decisions are evident. For example,
the original IXC competitors, which surrendered nearly half their revenue to the
Bells to pay access charges, now are facing long-distance competition from those
same Bells while not having gained a foothold in the local markets. Plus they are facing competition from Internet phone companies
startup and cablecos that have never paid a dime in access charges.

The lack of competition at the local level has denied
consumers the economic and service quality rewards experienced in long-distance
services. This, in turn, has created an opportunity for competitive providers
and technologies such as wireless, powerline communications and Internet
telephony that were not even on the map a few years ago. Even cable
companies, which also operate de facto monopolies, are using regulations that
favor Internet telephony and an unregulated service classification to roll out
competitive local and long-distance telephony services.

It is more than interesting to note that nearly all this
traffic still touches the PSTN, which must be maintained.

The current regulatory framework, which supports different
competitors in different scenarios but is not based on financial modeling,
cannot survive. If regulators and legislators are smart, they will look all the
way back to 1984 when competition was fostered, consumer prices plummeted and
all companies accessing the public networks financially supported those
networks.

KHALI HENDERSON

khenderson@vpico.com.
Editor in Chief