The Wall Street Journal
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New York, NY 10281
In the light of the California electricity catastrophe, we are surprised by Michael Armstrong’s continued support of forced structural separation of Bell company wholesale and retail services (Break Up the Baby Bells!, March 28, 2001). As was discovered in California, whenever regulators forcibly dismantle an integrated network enterprise, they ignore the law of unintended consequences at their own peril.
Perhaps worse, despite Mr. Armstrong’s pro-competition rhetoric, his policy prescriptions would hinder, rather than enhance, true competition in the telecommunications industry. Sure, divestiture and bigger wholesale discounts would make it easier for other firms to lease parts of the Bell networks. The resulting competition, however, would be of a Potemkin kind, ultimately based on regulatory fiat, not market forces. Efforts to build true facility-based alternatives to the Bells – based on cable TV systems, wireless, or other promising technologies — would be undercut.
Armstrong does hit on a real problem, however, when he references low residential rates. Residential rates are typically kept artificially low through cross-subsidies, resulting in a barrier to competition. The answer, however, is not to mandate equally artificial wholesale rates. Instead, retail rates should be rebalanced to make economic sense. That’s a politically painful step, but one that may be necessary to bring the benefits of real competition to consumers.
James L. Gattuso
Vice President for Policy
Competitive Enterprise Institute
Director of Technology & Communications Policy
Citizens for a Sound Economy Foundation