The Federal Communications Commission’s February 20 ruling on
telecom competition policy is truly beyond satire. Writing into the
night like a high school student cobbling together a term paper
just before semester’s end, cutting and pasting a 400-page
monstrosity, forming a majority by clandestine negotiations behind
the chairman’s back, is crazy enough. But then add the two
Democratic commissioners, gifts to the FCC from Fritz Hollings and
Tom Daschle, who admit in open session that they do not know the
full order they are voting on, but that minor fact notwithstanding
they will support it. (As Dave Barry says: “I am NOT making this
up.”) Stir in Republican usurper Kevin Martin, whose “Jeffords
Jump” creates a Democratic FCC majority over key telecom policy
rulings that drive a sector universally acknowledged as a
cornerstone of robust economic recovery. The trio forming the
majority thus did a star turn reminiscent of the zanier routines of
Dean Martin and Jerry Lewis: Republican Martin as straight man
Dino; the Democratic duo serving up slapstick worthy of Jerry.
The kindest explanation for Martin’s crossover is ideological: a
mechanical application of classical states’ rights federalism to
telecom policy. But fiber-optic and wireless technologies have made
the marginal cost of calling across the street and of calling
across the continent essentially the same. A unitary federal policy
is thus the logical way to regulate telecommunications. Instead,
the Martin-Lewis majority has superimposed upon the Clinton FCC’s
national infrastructure socialism a re-Balkanization of federal
telecom policy, with 51 public utility commissions free to adopt
network access rules subject to review by 12 federal appeals
courts. Given likely divergent appellate court rulings, add yet
another trip to the Supreme Court, the fourth key telecom case
since passage of the 1996 Telecom Act. The FCC is batting .333 for
the first three cases, a good average in baseball but spectacularly
under par for a regulatory agency, whose policy rulings enjoy
strong presumptive legal deference upon judicial review.
Add layers of regulatory micro-management, the policy signature
of the FCC for three decades. And make the principles complicated,
too. A few samples: Bell company (SBC, BellSouth, Verizon, Qwest)
installed fiber to newly-built homes is free of regulation; Bell
upgrades to fiber to old homes must give new entrants access to
voice service but not to data services — except that firms already
offering data over such lines are grandfathered; Bell company
“dark” fiber — unused fiber in place — must be shared with
rivals; existing Bell copper plant remains de facto community
property, available to new local market entrants at a steep network
access price discount vis-à-vis the true cost of network
access.
Just to be sure that nothing happens quickly, the FCC will phase
out network access subsidies over three years — but only if the
state commissions concur; state review is market-specific, taking
into account customer class, geography and service type. The
earliest date for any sunset of network access rules — which must
be approved in each market for each separate part of the incumbent
local carrier networks, is end-2006; more likely look for 2010.
Worse for the Bells, the costs of adverse parts of the new FCC
rules are paid up front, while benefits from favorable parts of the
order are realized — if at all — much later. Given Bell company
financial straits — sagging capital investment and declining core
voice businesses whose traffic is inexorably migrating to wireless
and e-mail — the Bells may well be airline-dead by the time
regulatory relief comes.
Chairman Michael Powell’s “Picasso-esque” characterization of
the majority’s product seems apt, except that the sheer artlessness
of its decision makes it a stretch to associate the ruling with one
of the twentieth century’s acknowledged artistic geniuses. (Not
germane are Picasso’s Stalinist politics and Talibanesque behavior
towards his ladies; however, his visual deformations are a fine
parallel.)
Dean and Jerry were playing for laughs. What the FCC has done
with national telecom policy is, alas, not funny at all. Insane
asylum behavior in the movies leavens the burdens of this Earthly
vale; similar conduct at a major federal agency ruling on questions
crucial to American economic growth adds to them.
Among those who will not likely be laughing: (1) investors, who
will shun not only the Bells, but also other telecom firms, due to
protracted regulatory uncertainty; (2) Bell firm customers, who
will see less Bell investment to upgrade service; (3) lenders to
the Bells, who will see deteriorating Bell balance sheets; (4)
lenders to major equipment manufacturers, who sell most of their
product to the Bells; and (5) telecom industry employees, stuck in
an industry meltdown now prolonged, possibly leading to a telecom
nuclear winter. Winners: who else but the Democratic Party’s
favorite (Shakespeare’s un-favorite) constituency, lawyers, who
will make enough money litigating endless rounds to buy a zillion
F-22s.
With a lagging telecom sector, the economy will be deprived of
energy in a growth-driving sector. Alas, unless the White House
wakes up the FCC is unlikely to make major changes to its order.
With the White House and Congress distracted by such minor matters
as Iraq, North Korea and al-Qaeda the FCC’s opéra bouffe
will likely stand — and telecom values will fall further.
The FCC majority seems to believe that carriers whose core voice
business is imploding will still invest in new technology upgrades.
Investors, it seems, will ignore the core financial problems and
concentrate on exciting new business ventures. To assess this
premise, imagine President Bush trying this gambit in the 2004
election. Assume he defeats Saddam, while al-Qaeda captures
Washington. If you believe voters would compartmentalize those two
results, you can believe that investors will do the same in
assessing the impact of the FCC’s ruling on major telecom firms
—ignore voice revenue declines while betting on new business
profits rolling in. Investors are far more likely to prefer putting
their 401k money into industries whose firms are not regulated by
Dean and Jerry. And President Bush, after seeing the economic
impact of the new rules, may wind up getting off the wagon and
playing catch-up with Dino at the bar.
