Critics claim 1996 act fails expectations Consumer advocate says competition has not increased

Awaiting benefits of law

Some experts argue companies require period of adjustment

January 11, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

The Telecommunications Act of 1996 promised to bring telephone and cable-television consumers lower rates, expanded choices and new technology.

The key to it all would be competition. The legislation cleared the way for local-service phone companies, long-distance firms and cable-television providers to invade each other's markets and bid to offer one-stop communications shopping. The real winner would be the American consumer.

But, as the Telecommunications Act nears its second anniversary, many industry experts say those expectations are not being fulfilled.

"To date, you cannot tell me how average consumers are better off as a result of the Telecommunications Act," said Mark Cooper, director of research for the Washington, D.C.-based Consumer Federation of America. "We have a great deal of concentration and very little competition. There's the possibility we won't get the competition the act promised and therefore we won't get the benefits the act promised."

Cooper said that full competition in the local-service phone market would save consumers about $10 billion, but such competition is a long way off. Since the Telecommunications Act was passed in February 1996, 50 million Americans have switched long-distance companies, but only 1 million have changed their local-service providers.

Critics say competition is floundering on other fronts as well. Telephone and cable companies have largely declined to enter each other's markets. Industry mergers -- such as last week's marriage of SBC Communications Inc. and Southern New England Telecommunications Corp. (SNET) -- seem to portend an era of fewer, not more, competitors.

However, not all industry observers paint a dark picture of the act. Philip Wohl, an equity analyst for Standard & Poor's in New York, said the legislation has fulfilled its framers' hopes "100 percent."

"It's just taking a period of adjustment as companies figure out what's cost-efficient," Wohl said.

He agreed that the legislation is resulting in more mergers, but he said this trend will bring down consumer costs as the surviving companies become larger and more competitive.

"Now that you see the combinations happening, you see that the act did it right," he said. "It seems like the big guys can grow in different markets, and the little guys can stay in by keeping their niche and doing what they do best."

Cooper disagrees that mergers will boost competition. "When you make bigger and bigger companies, it gets much more difficult to attack them through competition," he said.

Cooper said the recent behavior of the Bells proves his point. In 1997, two huge Bell mergers took place. Bell Atlantic Corp. joined forces with Nynex Corp., while SBC bought Pacific Telesis Group. Cooper said this spate of industry marriages has done nothing to encourage local-service competition between the Bells.

Other disagreements

Analysts aren't the only ones disagreeing over the legislation. Fierce disputes have arisen between companies over how the law should be interpreted. As a result, courts have taken an important role in defining the law, often disagreeing with federal regulators.

On Dec. 31, for example, a federal judge in Texas struck down the act's requirement that the Bell companies open their local markets to competition before offering long-distance in those markets.

Philip C. Cashia, director of the Center for Telecommunications Management at the University of Southern California in Los Angeles, said the involvement of the courts is bad news. "The judiciary is making decisions on telecommunications that will affect us for decades, but they're the ones who know the least about it," he said.

Cashia said the Bell companies are using the courts to hinder the intended results of the legislation. He said the Bells want to gain quick access to long-distance markets without making themselves vulnerable to local-service competition and are loath to see their state-level political power diluted by national legislation. "They're going to drag their feet every step of the way," he said. "They don't want the law to work. They want the law to go away."

While the courts are making their mark on the legislation, analysts doubt that Congress will revisit the law soon. Howard Shelanski, a law professor at the University of California in Berkeley, said, "It really was a hard-fought piece of legislation, with a lot of careful compromise. I would be surprised to see any legislative fine-tuning unless something goes radically awry."

While Shelanski and other analysts say the interplay between long-distance companies and the Bells is the most important part of the legislation, the cable-television industry is also a key player in the law.

Congress had hoped that cable companies would use their high-capacity networks to provide competitive telephone services, and that phone companies would use their lines to enter the cable market.

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