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Capitol Comment

    Capitol Comment 191 - Competition Through Innovation, Not Regulation

    05/21/1998

    The Telecommunications Act of 1996 has been an agent of tremendous change. New regulatory burdens, repeating cycles of litigation and few observable benefits to consumers have been its progeny. All of that is about to become history. An agile long-distance company with a ferocious appetite for new customers is prepared to defy Washington regulators.

    Technology and innovation have recreated telecommunications industries many times over. Dramatic change is standard. However, the regulatory process in which telecommunications providers must work is slow — slow moving and slow to change.

    When innovation answers the call of competitive forces, regulation is left behind. Early this month, U S West announced a new strategic partner in Qwest Communications. Together, they will provide a wide variety of services. If consumers find this arrangement valuable, it will be a success in spite of regulation, not because of regulation.

    Instead of battling one another before state public service commissions, federal regulators and the press, these telephone companies have thrown out the old regulatory play-book and made their own rules. By forming this type of partnership, local and long-distance telephone companies can begin to offer a full range of telecommunications services. Everything from a dial tone and call-waiting, to paging, wireless, Internet, and long-distance services could come on one bill, in one custom designed package and from one company. Washington has traditionally stood in the way of this level of service.

    This strategic arrangement would also defy the historically cozy relationship that telephone companies have had with regulators. Prior to the 1984 breakup of AT&T, government-granted monopolies for telephone service lulled providers into a mind-set of go-along to get-along — even at the expense of good business decisions or improved consumer satisfaction. Since 1984, local telephone companies have tried to litigate their way into new markets by challenging regulatory restrictions on which business they can enter. Now, one of them has found a way to bypass the courtroom and jump directly into the long-distance market. While this should make consumers happy, time will tell what the entrenched regulators in Washington will say.

    Currently, the five Baby Bells are prohibited from providing long-distance service in their own regions. Unless, that is, the Bell company meets a series of statutory obligations and passes an arduous three-step review process. No company has ever been able to meet all of the requirements. Subsequently, consumers have seen little change in the aftermath of the Telecommunications Act. Likewise, long-distance providers have not entered local residential markets in earnest, and as a result, competition has been slow to develop in the local loop.

    Although the Telecommunications Act prohibited the Bells, which includes U S West, from offering long-distance service through a subsidiary, the law does not address the idea of partnering with an independent company. Initial estimates of the Qwest-U S West deal suggest that as many as 25 million customers across the Western United States could have one stop shopping for telecommunications services. In exchange for paying a fee to U S West for every new long-distance customer, Qwest is generating traffic for its new 16,000 mile fiber-optic network.

    The Telecommunications Act was a positive step. Competition in all communications markets is its stated goal. However, its downfall has been reliance on regulation as a means of achieving competition. For an industry that always has been heavily regulated, a strategy to bypass the cumbersome regulatory procedures of the Federal Communications Commission and to simply offer new services to consumers is bold and commendable.

    Strategic partnerships provide a competitive alternative for consumers. There are few other incentives for companies to join forces. As a result of the Qwest-U S West partnership, tens of millions of consumers across fourteen states have a new competitive choice for telecommunications service. Consumers benefit from competition through lower prices, new services, higher quality product information and faster rates of innovation. Let’s hope that everyone in Washington sees it that way.