Copyright 2000 St. Louis Post-Dispatch, Inc.
St.
Louis Post-Dispatch
December 15, 2000, Friday, FIVE STAR LIFT
EDITION
SECTION: EDITORIAL, Pg. D17
LENGTH: 872 words
HEADLINE:
LOCAL PHONE SERVICE FIASCO SURE RINGS A BELL
BYLINE:
James K. Glassman
BODY:
TELECOMMUNICATIONS
Where's the competition? Nearly five years after
passage of the Telecommunications Act of 1996, it's fading out of sight.
In long distance, competition is hotter than ever. Consumers get huge
breaks on interstate and international calls. Price pressures have reduced
profits, spurred a 60-percent decline in stock prices for long-distance
companies and forced major carriers AT&T and MCI-WorldCom to restructure. At
the local level, the story is very different. The Telecom Act was supposed to
end the monopoly of local service by the regional Bell operating companies, or
Baby Bells.
But BusinessWeek may have been prescient last year in
labeling one of the Baby Bells leaders, SBC Chairman Ed Whitacre, "The Last
Monopolist." For this market has turned away from competition.
It's
moving toward a remonopolization of telecommunications from the bottom up. Since
1996, the seven Baby Bells and GTE, the other giant local phone service, have
dwindled to four.
Verizon is a combination of BellAtlantic, Nynex and
GTE. This year, it will have $ 65 billion in revenues. SBC, formed from
Southwestern Bell, PacTel and Ameritech, has a market capitalization of more
than $ 160 billion, twice that of AT&T.
These behemoths control the
last mile of telecommunications into the home. Their monopoly status is
protected and regulated by often captive and generous state officials.
As a result, the Bells have steadily increased their returns. Bell
South, for example, has seen its return on equity double since 1993, to 26
percent last year.
The Bells have thwarted the competition that Congress
and President Bill Clinton envisioned in the Telecom Act by first filing
lawsuits and then dragging their feet.
Meanwhile, smaller companies that
had hoped to compete are dropping by the wayside.
Last week, Covad
Communications Group, one of the largest upstarts (called C-LECs or competitive
local exchange carriers) competing with the Baby Bells in high-speed Internet
data transmission, announced the layoff of 400 workers and an end to its build
out of its digital subscriber line network.
Its stock has plunged 93
percent in the last year -- despite predictions of 70 percent growth in the
kinds of services Covad provides. It has had to join similar companies in
seeking partnership with the Bells to stay afloat, selling a 6-percent stake to
SBC.
Such deals sidestep the rules set by the Federal Communications
Commission to implement the Telecom Act. Those rules required the Bells to sell
components of their networks to C-LECs at discounted rates to foster
competition. Only after complying were the Bells to get permission to enter
long-distance business.
But as Jennifer Files recently wrote in the San
Jose Mercury News: "Dependent on networks owned by the phone companies they
compete against, (C-LECs) wound up stuck in legal and lobbying fights for fairer
access to the larger companies' systems."
The markets recognize what's
going on. The low stock prices for the Bells' competitors reflect the reality
that they don't have a chance to succeed.
After five years of effort and
$ 100 billion in investment by would-be competitors, the Bells still control 95
percent to 98 percent of local access lines.
Yet despite this lack of
local competition, regulators have granted Verizon the right to long-distance
service in New York and granted SBC a similar deal in Texas.
With almost
breathtaking audacity, the Bells now are trying to gut the Telecom Act entirely.
They have pursued federal legislation -- the Internet Freedom and
Broadband Deployment Act -- that would allow them immediately
to get into the long-distance data business (soon to be the largest and most
lucrative part of long-distance service) without fulfilling their obligation to
open local service to competition.
They are creating a thicket of
problems for their potentially biggest competitor for local and Internet
services -- the cable television industry. Arcane cable ownership restrictions
already limit the competition that the industry can provide the Bells. Still,
the Bells propose to hobble it some more.
They have funded campaigns to
force cable companies to open their lines to all internet service providers.
Such "open access" -- actually forced access -- has not been shown to be
technically feasible yet.
But regulators are going along. The Federal
Trade Commission, which had opposed such policies as undue government
interference in private enterprise, now wants Time Warner's cable operations to
open its lines to ISPs on politically mandated terms if its merger with American
Online is to go through.
William Kennard, the FCC chairman, also appears
to have reversed field against such intervention. All of this gives the Bells
more time to roll out and improve their own DSL service, locking in their
captive audience.
Congress and the regulators need to wake up. The
reason Americans aren't getting the best telecommunications service possible is
that the local monopoly not only lives but grows.
Without firm action to
enforce the Telecom Act, consumers will soon find its promises of choice will
come down to this: The Bells, the Bells, and only the Bells.
NOTES:
James K. Glassman is host of
TechCentralStation.com and a fellow at the American Enterprise Institute in
Washington.
LOAD-DATE: December 15, 2000
