Why Give Up on Competition?

Why Give Up on Competition?

Go to just about any telecom conference these days, and some industry maven will make the case that restoring competition to the telecom world is so 1990s. Why don’t we all just recognize the inevitable, they ask: telecom is a natural monopoly, competition is a chimera, and the sooner we flash a steady green light for more industry consolidation and less government oversight, the better off we’ll all be.

Don’t get me wrong. At first the super-sized telecoms will try to convince you that competition is alive and well. But with two companies controlling over two-thirds of the wireless market, with many areas having only one or two fixed broadband providers, and with never-ending proposals from the giants for more mergers and consolidation, that argument holds up for about 30 seconds. So then one of the vast army of industry lobbyists and hired think-tankers will say something like this: “Well, this is really a natural monopoly anyway and competition can never survive here. So forget the competition-based Telecommunications Act of 1996, ignore the mandate of Congress to encourage competition, and get government out of the way of telecom’s survival of the fittest.” A few of the anti-competition advocates might hint that they’d accept some very minimal government mini-regulations, but let’s be clear—these folks dream of a sugar-plum world of unregulated markets. That’s their goal in Washington, DC. And that’s their goal in state capital after state capital where, working through the special interest-financed American Legislative Exchange Council (ALEC), they have persuaded some 19 state legislatures to remove regulatory authority from state public service commissions that for years have been trying to protect consumers and preserve competition.

FACT TO REMEMBER: The consolidated world of telecom broadband did not evolve from the hand of God, the mysterious workings of natural law, or the inevitability of market-based dynamics. It was enabled by conscious decision-making at the federal level, largely through the abdication of its oversight responsibilities by the Federal Communications Commission over the better part of 30 years.

Congress made clear its intention to avoid the resuscitation of Ma Bell when it approved the Telecommunications Act of 1996, signed into law by President Bill Clinton. It laid down the principle of competition and charged the FCC with implementing it through strong rules and strict enforcement. New rules were written, but by the time I was sworn in as a Commissioner in mid-2001, dismantlement of those rules by the new Republican majority was in full swing. To make a long story short, the majority weakened and/or abolished recently-passed rules requiring the big companies to provide both reselling rights and wholesale leasing of their facilities to competitors. Other countries took a different route and required such leasing, with the result that today many of them are far ahead of the United States—now Number 15 in the international broadband penetration ranking. [Editor's note: The International Telecommunication Union's latest report ranks the U.S. 18th in fixed broadband penetration and 8th in mobile broadband penetration. The U.S. ranks 23rd in percentage of individuals using the Internet (77.9%)]

The FCC majority went on to allow the Bell companies to enter the long-distance markets (which were of increasing value for data transmission) supposedly in exchange for the opening of their local markets to competition, which Congress had stipulated. The Bells picked up tens of millions of long distance lines, but they were careful not to compete with one another locally. To make the situation worse, the FCC did a dismal job of ensuring that any conditions attached to FCC approvals of all this were enforced. And when it came to rules that the FCC couldn’t abolish with a straight face, it frequently granted the big telcos forbearance from their application. In one case, I remember the Commission saying that a new deregulatory decision would stand even if the courts didn’t agree! Meanwhile, the Commission was busy approving mergers and acquisitions galore. As soon as one transaction was approved, another one came through the door. Sometimes it seemed like the merger approval business was our only business.

Worse than all the above, the FCC voted, over the strenuous objections of Commissioner Jonathan Adelstein and me, to remove advanced telecommunications (broadband) from the purview of Title II of the Telecommunications Act—where consumer protections, competition, privacy, and public safety are clearly mandated—and placed them instead in the nebulous and uncharted land of Title I, where regulatory authority is uncertain, consumer protections are virtually non-existent, and where the huge companies are better positioned to wreak havoc on the promise of competition.

ANOTHER FACT TO REMEMBER: There was no judicial mandate for this action. The big telecoms like to argue that the Supreme Court validated the FCC “reclassification” of broadband in the famous Brand X decision. In reality, the Court was merely according traditional deference to an expert agency, and a number of the Justices remarked that the Commission could just as well have decided to keep access to broadband under Title II. The Court, like the hand of God, bears no responsibility for the errancy of the FCC.

Well, you ask, if we can get competition back, how do we do so?

  1. Competition could grow if we learned to say “No” to more industry mergers. Not all mergers are necessarily bad, but we have allowed far too much industry consolidation over the past 15 years. It was a welcome change when the Justice Department and the FCC put the brakes on the AT&T/T-Mobile transaction. I wish they had done the same with the Verizon-cable deal. Wireline, wireless and cable firms are all broadband companies now. Verizon, Comcast, and AT&T constitute an oligopoly of market power inimical to the interests of consumers and to the growth of competition. In some areas they are a duopoly and in other places sometimes the only option available—a monopoly.
  2. Competition could grow if we encouraged innovative approaches like municipal broadband. “My way or nothing” may be the mantra of the big guys, but that means no broadband in places they don’t wish to serve. ALEC-backed state laws are denying communities the right to serve themselves when others won’t. Those laws need to be reversed, perhaps preempted at the federal level. Over 135 communities got in under the wire, bringing opportunity-creating broadband to areas that otherwise would be locked out of the Twenty-first century’s most important infrastructure.
  3. Competition could grow if our spectrum policy really encouraged it. That doesn’t mean wholesale transfer of big broadcaster spectrum privileges to even bigger wireless companies. It means making careful and balanced decisions about what best serves the public interest. It means more unlicensed spectrum, database-driven spectrum access, shared spectrum, government turning over some of its spectrum rights to commercial use, smart radio technologies, and genuine incentives for minority entrepreneurs. It means clear roaming requirements and strict enforcement. It means doing something—finally—about special access which is a multi-billion dollar disincentive for competition. The potential of special access reform for backhaul, competitive wireless, local governments, schools and universities, and small business is huge. Special access should have been reformed years ago.
  4. Competition could grow if the FCC adopted a rigorous “use it or lose it” spectrum rights policy. While no one knows (unbelievably at this late date) what spectrum is actually being utilized and how much is lying fallow as you read this, the amount of unused spectrum is no doubt very high. Unused spectrum licenses should be reclaimed and the Commission has the authority it needs to reclaim them. It is, after all, the people’s spectrum, and if it is not being used by some to promote the people’s interest, it should be made available to those who will.

So it’s not “game over” yet. We shouldn’t throw in the towel on competition until we give it a chance. Of course it’s late in the day, and each passing month makes the climb a little bit steeper. But if we begin by realizing that policy played a huge role to enable our present oligopoly, perhaps we will come to understand that changing policy can also have real-world results. Our future is not determined by some iron law of telecom thermodynamics. It’s in our hands. Let’s start acting like we understand that.


POSTSCRIPT: Permit this monthly contributor to the Benton blog a moment to congratulate Charles Benton on his receipt last week of the prestigious Everett Parker Award. Just last month, my written piece in this space focused on the legendary Everett Parker, staunch defender of public interest broadcasting and life-long beacon to communications reformers everywhere. Charles Benton is in the same tradition. The intelligence, tenacity, enthusiasm and public-spiritedness he brings to everything he does has inspired me for years. His understanding of the important role of communications in society, his commitment to the public interest, and his dedication to advancing the arts make him one of the nation’s most distinguished citizens. The Parker Award is much-deserved recognition of this good and enormously productive man.
Michael Copps served as a commissioner on the Federal Communications Commission from May 2001 to December 2011 and was the FCC's Acting Chairman from January to June 2009. His years at the Commission have been highlighted by his strong defense of "the public interest"; outreach to what he calls "non-traditional stakeholders" in the decisions of the FCC, particularly minorities, Native Americans and the various disabilities communities; and actions to stem the tide of what he regards as excessive consolidation in the nation's media and telecommunications industries.

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Comments

The failure of competition in the US, once vibrant, can be laid at the feet of both conservatives and liberals alike. These above comments support this contention. Until policy makers, academics, trades and capital market participants understand that vertical integration cannot effectively clear rapidly shifting supply and demand parameters at every layer of the stack the US will continue to fall farther and farther behind. When we start thinking along horizontal scaling, we will begin to realize pricing that reflects marginal cost. The latter is arrived at a priori only through numerous iterations of supply/demand assumptions and outcomes. Rarely if ever do we see this type of modeling anywhere in the industry.

Infostack on October 16, 2012 - 5:10pm.