Rules in flux

Change is nothing new in the high-tech world. After all, cutting-edge technologies are transforming by nature, finding new ways to solve old problems. Nowhere is this more prevalent than in today’s telecommunications market, where the Federal Communications Commission chairman has announced his resignation, states are rewriting their telecommunications rules, and digitized Internet protocols are swiftly making old analog technologies obsolete.
In short, the technology, the players and the rules of the game are all in flux. This provides the perfect opportunity to overhaul today’s regulations, which are based on yesterday’s technologies and no longer serve consumers or competitors.
Outgoing FCC Chairman Michael Powell was acutely aware of the changes afoot. His tenure was marked by a vision to promote a more competitive marketplace through new rules that acknowledge innovations since the 1996 Telecommunications Act was signed into law.
As telephone, cable, wireless and satellite technologies converged, the old rules intended to open the market began to stifle competition and limit critical investments. Different taxes and regulations for these different providers make little sense when they all compete to provide consumers the latest bundle of voice, video and data services. Unfortunately, political hurdles and bureaucratic inertia have left Mr. Powell’s vision unfulfilled, leaving those in the marketplace to fight it out in the courts rather than compete for customers.
Ideally, the incoming chairman will continue carrying the mantle of reform, ushering in a new marketplace where all providers can compete head-to-head in an open market.
State regulations have also begun to chafe, and a number of states are rewriting their telecommunications laws. Here, too, competition and removing barriers to innovation should be emphasized. Though wireless subscribers now outnumber landlines in a number of states, the laws ignore this important source of competition, as well the threat from phone service provided by cable companies using VOIP technologies. Instead, the laws have artificially segmented the market, with different rules, taxes and requirements for phone companies, cable companies, wireless companies and others.
The current round of rewrites should modernize failing laws and establish a true competitive marketplace that allows all providers to compete equally for customers.
The marketplace itself is probably the best arbiter of change, with new technologies driving significant industry realignments. In addition to landlines and wireless service providers, cable companies are pursuing new customers through broadband deployment that serves up the triple threat of voice, data and video services. Satellite companies have joined the fray, offering even more competition, and power companies are not far behind. Meanwhile, the Baby Bells, which rarely ventured each other’s territories, aggressively pursue customers beyond their home territory.
So it is not surprising the market is reinventing itself. Sprint has a $35 billion merger deal with Nextel, SBC has announced its intention to acquire AT&T for $16 billion, and Verizon has just unveiled its plan to acquire MCI for $6.6 billion.
The Sprint merger creates a formidable competitor on the wireless side, while the SBC and Verizon acquisitions offer the legacy phone companies a foothold in the national business market as well as a quicker transition to the latest digital technology, fast replacing the old analog phone systems.
Such mergers and acquisitions reflect the fundamental changes under way in today’s marketplace, and are critical steps in the transformation to the next wave of telecommunications.
While these changes mean better technologies and new services for consumers, already there are cries of monopoly and fears of the resurrection of Ma Bell.
But in a world of change, today’s market cannot be compared to the past. There is no Ma Bell that stands alone when consumers can choose among wireless, cable, satellite and, eventually, power companies. Today, the copper wires that traditionally connected customers to the outside world no longer have a monopoly; there are a number of conduits between providers and consumers, all providing real competition, which keeps prices low and customer service high.
Ma Bell’s time has come and gone, and so must the era of contrived competition under the 1996 Telecommunications Act. Technology and the marketplace have outpaced the old rules, and state and federal regulators must recraft their laws to promote rather than prohibit the unfolding new competition.
The market is changing and consumers stand to gain a great deal, but only if the government is willing to eliminate the outdated regulations and taxes that have stymied investment and growth in the telecommunications sector.

Wayne T. Brough is chief economist at FreedomWorks, a nonpartisan, nonprofit organization that advocates lower taxes, less government and more freedom for all.