FCC Decision Leaves Communications Market Tied in Knots, Mostly

After concluding the Unbundled Network Triennial Review, the Federal Communications Commission (FCC) has done little to sever the Gordian knot that has brought the telecommunications sector to a virtual standstill. The Commission’s decision failed to eliminate requirements that force local phone companies to lease their lines and equipment to their competitors at substantially discounted rates. This practice was a short-run attempt to boost competition under the 1996 Telecommunications Act.

After the courts had found the current system wanting, it was sent back to the FCC for revision. Today’s announcement ensures another lengthy journey through the legal system and a return trip to the FCC before any progress is made.

While requirements to lease lines may have introduced new service providers, it did little to promote investments in new infrastructure. Competitors simply leased what they needed and incumbents had no incentive to invest in equipment that would be shared with their competitors. Understandably, this mismatch of incentives has slowed the development of broadband technology and the introduction of true facilities-based competition. The Triennial Review offered an opportunity to correct these problems, but the FCC’s decision failed to resolve these issues and leaves the industry under a cloud of regulatory uncertainty.

Worse yet, the decision opens the door to even more litigation and regulatory proceedings by pushing many decisions about pricing and unbundling onto the state public utility commissions. This means that the future of competition will have to be battled out in the 50 states and the District of Columbia as well as the federal government. In his dissent to the Commission’s decision, FCC Chairman Michael Powell made clear the potential dangers of the FCC’s ruling, “In choosing to abdicate its responsibility to craft clear and sustainable rules on unbundling to the State Public Utility Commissions the Majority has brought forth a molten morass of regulatory activity that may very well wilt any lingering investment interest in the sector.”

On the plus side, the decision did manage to pry high-speed communications out of the mess, hopefully opening the way for new investments in fiber-optic systems to stay abreast of consumer demands in the information economy.

Overall, however, the ruling is a missed opportunity that leaves important questions about the future of telecommunications tied up in the courts and in regulatory proceedings. Rather than a decisive solution, the ruling offers lawyers and lobbyists a lucrative future in the telecommunications sector.