Gary Strannigan’s Letter to the Washington Utilities and Transportation Commission

August 10, 2001

Dear Sir:

On behalf of 14,000 members of Washington Citizens for a Sound Economy (WACSE), I write to encourage you to support Qwest’s application to offer long-distance services to consumers in the state of Washington. Qwest has implemented the market-opening requirements of section 271 of the Telecommunications Act successfully and the market for local telecommunications service is irrecoverably open to competition in Washington State.

For nearly a century, local utility services have been mired in a morass of regulation that supplanted markets with political decision-making. Local territories were divided into fiefdoms where regulated monopolists held consumers captive. As a result, consumers had no recourse when their service suffered or terms of pricing changed; utility companies made inefficient investments, yet collected above-market returns on their publicly traded stocks.

Regulatory reforms attempted to correct this imbalance. Both the 1996 Telecom Act and the elimination of rate-of-return regulation at the state level were positive steps in that direction. Today, another round of regulatory relief is needed to eliminate the imaginary Local Access Transport Area (LATA) boundaries that penalize consumers and irrationally define markets.

If awarded Section 271 approval, Qwest will be free to invest billions of discretionary risk capital to provide new telecom services to Washington consumers. It was not long ago that many economists argued that such capital investment would never be made if the company were not guaranteed a monopoly franchise. In today’s competitive marketplace, these private investments are necessary just to compete for consumers.

With the emergence of the Internet, wireless voice, and fiber-coaxial hybrid cable, telecom regulators have been afforded an once-in-a-lifetime opportunity to eliminate existing regulations and allow meaningful competition to take hold.

The tragedy of the local phone market is that some policymakers believe we can regulate our way to competition. These officials, and some industry voices, believe local voice competition from other technologies – upgraded cable and wireless – should be ignored in favor of creating competition on the old US West network through new regulations and operational support system (OSS) requirements.

Consumers do not benefit from government-managed competition where many firms compete over the old copper-wire network. Consumers benefit from meaningful competition between rival networks owned by competing firms. Once investments are made in telecom infrastructure, its owners have no choice but to compete for customers if they want to earn back their investment. This type of facilities-based competition has downward pressure on prices and places a premium on innovation and cost-saving technology.

To deny consumers the benefits of full telecommunications competition because of misplaced concerns about local competition would be unfortunate. Recent studies of the effect of 271 approvals in New York and Texas demonstrate that the consumer benefits from lower long distance rates are significant and could exceed $500 million in Washington. In addition, these states have witnessed dramatic increases in local competition in the wake of 271 approvals. When the LATA boundaries came down, long-distance companies rushed in to defend their territory by competing in the local voice market. Consumers also witnessed dramatic increases in the efficiency of local transport investment. Section 271 approval allows incumbent providers to streamline their networks by eliminating the need to build the redundant facilities required by the LATA boundaries: Washington consumers will benefit through new high-speed Internet services for homes and community centers and lower cost voice service.

Citizens for a Sound Economy has been the voice of consumers for telecom competition since its founding in 1984. Competition is a product of, not a precursor to, deregulation. It is logical for firms currently insulated from competition to try to defend these barriers, but it is the interest of consumers that should prevail, not rival businesses. With this in mind, WACSE urges you to approve Qwest’s application to provide long distance services without delay.


Gary Strannigan

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