May 21, 2001
Punitive and retaliatory, H.R. 1697, “Broadband Competition and Incentives Act of 2001” and H.R. 1698 “American Broadband Competition Act of 2001,” turn back the clock on telecommunications deregulation and threaten to destroy the broadband marketplace. I strongly urge that you oppose both pieces of legislation, either as stand-alone bills or if offered as amendments to other legislation pending before the House.
Both bills use the buzzword “competition,” but promote a socialist notion of how to foster it. If enacted, they would limit consumer choice in broadband and punish venture capitalists.
Simply put, the bills repeal an essential element of the 1996 Telecommunications Act by abolishing the Act’s preemption on antitrust scrutiny. Such scrutiny is needed, proponents of the bill argue, because the Regional Bell Operating Companies (Bells) currently serve 92 percent of all retail local phone lines. But market share in local phone service is irrelevant because nearly all of the competition takes place on the same exchange.
Through implementation of the Telecom Act, the Federal Communications Commission (FCC) opened all of the Bells’ networks to competitors on an elemental cost basis and at wholesale rates. In addition to allowing new entrants to lease parts of the Bells’ network, the FCC also encouraged competitors to enter the market through arbitrage opportunities. New entrants were expected to use this government-created revenue stream to build their own facilities to compete with the Bells.
Unfortunately, few competitors built rival facilities. Those that did found the price caps on retail and wholesale telecom services prevented them from recovering the sunk costs they had invested to build the new facilities. Competitors had a choice between negative revenue or few physical assets.
Businesses in high fixed-cost industries that lack real assets and depend on government fiat for their revenue are not attractive to investors. It should come as no surprise that the capital market for these new entrants collapsed. Equally unsurprising is that those companies with enough capital to avoid the regulatory morass of the engineered competition chose to purchase cable companies and make less capital-intensive upgrades on the existing cable networks.
Undeterred by evidence that demonstrates government-engineered competition on a single network to be a fatally flawed policy, H.R. 1697 and H.R.1698 would repeat the mistakes of the FCC’s Telecom Act implementation in an even more grand and costly fashion. They would repeal any protection for property rights in telecom facilities and socialize the means by which services are provided to consumers in the process.
On behalf of the 280,000 members, supporters and activists at Citizens for a Sound Economy, I strongly urge you to vote against H.R. 1697 and H.R. 1698 should either of these bills come to committee vote. The legacy copper network that is “owned” by the Bells and leased by competitors is yesterday’s technology. To punish consumers by preventing the well-capitalized and technically proficient Bells from investing in much-needed broadband networks is an act of folly.
It is unclear why the sponsors of these dreadful bills see the need to manufacture or manage competition on outdated Bell networks. The broadband access marketplace is already intensely competitive. Cable, phone, wireless, and satellite providers are all in direct competition.
This competition between rival networks and technologies is the goal of telecom deregulation and should be welcomed by policy makers. This nascent market should be deregulated to encourage the deployment of new facilities. Barriers to entry should be eliminated and property rights should be affirmed.
The telecom market may at times seem cloudy and local phone service does have a tainted history of rate-of-return regulation and eminent domain. But it is unwise to punish consumers for the regulatory foibles of years’ past.
Government-managed competition in telecommunications does not work. Passage of H.R.s 1697 and 1698 would ignore the lesson of the past five years and encourage even more lawsuits and regulatory jockeying.
If you or your staff would like to discuss any of the telecommunications or broadband legislation before Congress, please contact our Director of Government Affairs Danielle Doane to arrange a meeting with one of CSE’s policy experts.
President and CEO,
Citizens for a Sound Economy