The telecommunications-reform battle continues

STEPHEN N. BROWN

The Republicans` blueprint for telecommunications reform has undergone realpolitik mutation. Sen. Larry Pressler`s (R-SD) "discussion draft" [see Lightwave, April 1995, page 26] circulated through the halls of Congress and industry for months, but in the end was replaced by something very different. By a 17 to 2 vote, the Senate Commerce Committee approved the Telecommunications Competition and Deregulation Act of 1995, a telecommunications reform bill considered "overwhelmingly too regulatory" by Sen. Bob Packwood (R-OR). Only he and Sen. John McCain (R-AZ) voted against the bill. The committee`s approval is conditioned on a fall-back provision that allows any senator to offer amendments to the bill before the full Senate votes on it. The fallback is a tacit admission of failure that belies the apparent bipartisan support for the current bill. The job of a congressional committee is to work out the details and the differences of a bill so the full Senate gets a polished package. The fallback allows those parties not satisfied with the bill to tweak it, pound it or kill it through amendments. Thus, the Republican leadershi¥is in a bind because it may end u¥repudiating the work of its own Commerce Committee chairman, Pressler. Instead of being open or blatant, the repudiation would be signaled by a marked decline of the senator`s power and influence within the party. It could happen because Pressler`s handling of telecommunications reform may force Sen. Bob Dole (R-KS) to relive his highly visible naysaying experience of last fall. In September, he blocked reform legislation sponsored by Sen. Eugene Hollings (D-SC) because in Dole`s own words, it "included...gifxcessive regulation."

Dole, the Senate majority leader and the Republican party`s leading presidential candidate, is trying very hard to shed the image of a political obstructionist and wants to show he is a builder. However, he faces a difficult situation: Block the current legislation and be tagged again with a negative image, use amendments to pound the bill into something more palatable, or do nothing. Doing nothing is tantamount to letting Hollings set the agenda. One key provision of Hollings` bill was that local exchange companies could enter long-distance markets only if there were demonstrable and effective competition in local markets. The regional Bell operating companies opposed this idea and wanted entry into long distance by a "date certain." Pressler included the "date-certain" provision in his "discussion draft," allowing the RBOCs to offer long-distance service within three to four years. The RBOCs` victory was snatched away by the current bill, which now reflects Hollings` original position.

The interexchange carriers are pleased. AT&T said: "The Commerce Committee, under the leadershi¥of Senators Pressler and Hollings, has wisely dropped...the so-called `date-certain` entry into the competitive long-distance business." Gary McBee, the chairman of Alliance for Competitive Communications, which represents the Bells, had a politically correct muted response: "Today`s marku¥represents the first hurdle crossed in the race toward full competition in the telecommunications marketplace. ...As the bill continues to move forward, there will be issues on which we will want to work with the members of the Senate." Read that to mean "we may try amendments"--a good fit with Dole`s options if he decides to change the bill, which is likely. He may not be able to ignore the disappointment and rancor aimed at Pressler and his staff for allowing the current bill to change so much from its original form.

A total meltdown

In the bill, the Commerce Committee`s staff failed to include compromise language agreed to by the Democrats, according to published sources. Two days before the vote, Hollings suspected a double cross and confronted Pressler, who was so shocked that he acceded to demands for less deregulation. This explanation seems fanciful, but there is more. A Senate staffer was quoted as saying the process leading to the vote was "total meltdown." The final vote dismayed insiders. Unidentified staff aides and lobbyists who attended the voting session were quoted: "He (Pressler) lost control of the hearing...pathetic... Chairman Hollings ran a great show." At the vote, the audience laughed when Pressler claimed the legislation had changed only slightly.

The public may never know the real inside story. Despite the derision, it seems unlikely that a Senate committee chairman would change his view on the basis of a personal confrontation or disagreement with a colleague. Maybe the real choice was between mock bipartisan support and a party-line vote, where all Republicans voted "aye" and the Democrats voted "nay." A party-line vote would have ensured either a Senate filibuster by the Democrats or a presidential veto. By passing the bill as he did and moving it to the Senate floor for amendments, perhaps Pressler did the only thing he could do to kee¥reform process alive.

There is plenty of disappointment with the bill, even in its present form. For example, the "discussion draft" delayed the building of video dial-tone networks, despite the telephone companies` court victories that permit them to build such networks. Delay would have definitely aided the cable-TV industry, but that language has completely disappeared from the current bill. In addition, cable-TV prices will be regulated until the telephone industry has built sufficient video dial-tone networks to compete with cable TV. This is a victory for the telephone industry and a defeat for cable TV.

However, Dole strongly opposes cable regulation. Thus, he may listen when Decker Anstrom, president of the National Cable Television Association, says "We continue to support the complete lifting of price regulation of cable programming." Consumer groups are unhappy, too. The current bill allows telephone companies to buy out existing cable companies, regardless of size. Brad Stillman, legislative counsel for the Consumer Federation of America, says this is a "disaster." Crossownershi¥allows one company to offer cable and telephone service in the same area. Some day, we may get our telephone and cable-TV service from the same company, but that will not happen until the U.S. Department of Justice drops its opposition to such combined services.

Anne K. Bingaman, assistant attorney general and head of the Department of Justice`s Antitrust Division, commented on the bill: "By allowing movement to a `one-wire world`...the bill could have the effect of curtailing important potential competition." This is consistent with the department`s earlier positions on competition and deregulation. In a speech to the National Press Club this spring, she stated, "Real competition is the key to real deregulation," and pointed to a story in The New York Times that reported more than 25 million residential customers changed long-distance carriers in 1994. Apparently that freedom of movement is what the Department of Justice would like to see in local markets, and here lies the heart of the matter.

Friendly competition

Every day and everywhere in telecommunications policy and business, people compare competition in long-distance and local markets: If it works in long distance, it will work in local markets. That assumption has yet to be fully examined. In her speech to the National Press Club, Bingaman attributed the growth of fiber-optic markets to competition: "The United States now has four fiber-optic networks spanning the country--another by-product of competition. These networks make possible all kinds of new services and enhance others, including the Internet." That is true, but not a single potential competitor in the local markets is seriously considering fiber to the home. Although fiber to the curb is discussed, it is far from a reality. FTTH and FTTC costs are formidable. Thus, everyone wants access to the telephone company`s local switch, where the residential and other small customer traffic is handed off to the network. No one is willing to build fiber from the home or small business to the switch. This amounts to "piggybacking" on copper technology in the local loo¥rather than forging ahead with fiber optics. In Information Superhighways: The Economics of Advanced Communication Networks, Bruce Egan, a telecommunications expert and author, writes, "Based on available data...the local exchange companies face a large capital shortfall in their efforts to pursue widespread deployment of fiber to homes and businesses."

The way around that constraint is for telephone companies to buy cable-TV companies, or vice versa, and upgrade the coaxial-cable networks to carry two-way voice, video and data communications. Such a move makes perfect business sense. The Department of Justice`s opposition to a one-wire network is squarely at odds with what telephone and cable providers want--an integrated market where voice, video and data move over one line. The cultural and political problem with this outcome is that few people in this country are willing to let a single company own the communications paths as well as the content carried on the paths. Such a company would never be allowed to operate without any institutional or societal constraint. It would have to be regulated, but this is exactly what industry is trying to escape from and exactly what government says it cannot do well--if it can be done at all. The government`s supposedly poor regulation of pre-divestiture AT&T is often cited as one reason why there can be no return to regulation for telecommunications. The policy mantra is "competition in all markets at all times." Despite the chant, there is no assurance it will place new technology in the hands of ordinary citizens. Our economic goal conflicts with our political tradition. When those two qualities conflict, anything is possible, and that is why the "discussion draft" was wrenched right out of its socket.

Stephen N. Brown specializes in market research and public policy toward new technology in the telecommunications industry. For more information call (615) 399-1239.

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