Misunderstanding Threatens to Derail Broadband Deployment

H.R. 1542, “Internet Freedom and Broadband Deployment Act of 2001,” would deregulate the high bandwidth Internet market and provide substantial benefit to consumers and the economy as a whole. Yet, some policymakers remain intent on framing the Internet broadband debate in the context of the antiquated local telephone network.

The old copper local telephone network is indeed a product of rate-of-return regulation, imminent domain, and universal service subsidies. But why should the regulatory foibles of years past serve to derail legislation that would benefit consumers in the Internet marketplace of today?

On Tuesday, House Judiciary Committee Chairman James F. Sensenbrenner, Jr. (R-Wis.) wrote a letter to Speaker Hastert requesting “sequential referral” of H.R. 1542. A sequential referral would require H.R. 1542 to pass through the Judiciary Committee before it can move to the House floor.

On what basis does Chairman Sensenbrenner make this request? By asserting that the local Bell telephone companies are monopolists and that restraint of trade issues are the jurisdiction of the Judiciary committee.

Of course, Chairman Sensenbrenner cannot mean that the Bell companies are broadband monopolists. They have less than 30 percent of the residential broadband market and are prohibited by law from entering the lucrative long-distance backbone market.

According to Sensenbrenner, the Bells are monopolists because, as “the owners of the local exchanges [they] exercise monopoly power over those exchanges.” This is like launching an antitrust case against a steel manufacturer because it has an “unfair monopoly” over its own steel mill.

As Sensenbrenner readily concedes, the Bell companies OWN the local exchanges. The goal of the Telecommunications Act, and telecom deregulation in general, is not to engender competition on the local exchange, but to arrive at a marketplace when competition takes place between rival exchanges.

There is negligible consumer value to competition over the same wires. In fact, that type of communal competition harms consumers because it removes any incentive to improve the network.

To return to the steel analogy, competition over the same wires is like requiring a steel manufacturer to open up its mill and warehouse to its competitors: The steel company would have no reason to make capital investments in the shared space. Nor would consumers receive any benefit from the competition itself; the steel would be made at the same facility, under the same conditions, at the same cost. Where could the consumer derive any advantage from such a scenario?

The current telecom regulation quagmire is mostly a product of a complex regulatory arbitrage scheme to engender competition on the Bells’ telephone networks. For the reasons discussed above, this competition has failed to provide any consumer benefit and now acts as an impediment to broadband deployment.

Speaker Hastert should reject Sensenbrenner’s request and allow H.R. 1542 to come to the floor for a vote as soon as possible. H.R. 1542 would benefit consumers by allowing full competition between various exchanges. This competition among rival networks is the goal of telecommunications deregulation.

The question is simple: Would consumers derive more benefit from one steel plant shared by several competitors? Or from competition among several steel plants, all owned and operated by independent companies?