Telecommunications Act unlikely to be retooled

The Outlook

May 17, 1998|By Sean Somerville

AFTER the announcement of a $62 billion merger of regional telephone companies SBC Communications Inc. and Ameritech Corp., some consumer groups and lawmakers said it was the latest indication that telecommunications reform legislation in 1996 was not fulfilling its goals of more competition and lower rates.

Senate Commerce Committee Chairman John McCain, an Arizona Republican, suggested that it might be time to overhaul the law. How likely is it that lawmakers in Washington will revisit telecommunications legislation? What would the likely result be?

Scott C. Cleland

Managing director, Legg Mason Precursor Group

There is very little chance that Congress will revisit the Telecommunications Act in any serious way. It was really the only bill that could pass. All the stars were aligned in the right direction.

This was not a consumer bill at all. It was an industry fix bill, which was fueled by cable companies wanting deregulation, radio and television station owners wanting ownership rules lifted and the Baby Bells wanting to get into long distance. So far, the implementation has been all about undoing the gains the Bells won in the legislation.

The problem is that the Telecommunications Act, as it was written, is internally inconsistent. It wants to have its cake and eat it too. For example, the bill calls for universal service subsidies, which are intended to assure service in rural areas. At the same time, it promotes competition.

But the extent to which you promote competition, you hurt universal service, and the extent to which you promote universal service, you hurt competition.

McCain is one of the only members of the Senate who voted against the Republican version and the Democratic version. He has been consistently critical of the act since 1996.

Congress might open up the legislation, if they could get the fixes they want. But when you open it up, everybody starts fighting.

Adam Thierer

Fellow, economics policy, Heritage Foundation

Revisiting the legislation is a great idea that will never go anywhere. Unfortunately, the Telecommunications Act of 1996 is some ways broken beyond repair, and no one wants to take it into the shop and fix it.

TC We don't see much support for McCain's position. Many legislators got what they wanted, or they don't understand the legislation. The legislation set up a confusing, complex system of cross-subsidies that discourages competition, that keeps urban business telephone customers subsidizing rural residential consumers.

The subsidies are not means-tested, so that Ted Turner and Jane Fonda are getting subsidies in rural Montana. We need a targeted system to do this, to find a way to give subsidies to the people who need it the most. One result is that no one wants to compete for rural customers, because the rates are subsidized, and it's not worth their while to offer the service.

Regarding competition between industries, the problem was that sat around so long fearing that something bad would happen, that we didn't allow anything to happen at all.

At some point, the complex system we were trying to deregulate became more complex. That's the paradox of the whole situation. In reality, we've had reregulatory deregulation.

It could very well be that the mergers, at some point, might break the camel's back. But Congress is going to be very reluctant to do anything but clean around the edges.

Congress is very tired of this issue. They were never very happy to be dealing with such a complex issue in the first place. The last thing they want to do is open a confusing can of worms.

Gene Kimmelman

Co-director, Consumers Union

We opposed the law in the first place. We thought it was flawed and put too much risk on consumers. It assumed competition would be so forceful that you could relax ownership rules and public oversight legislation: No need to fear, because competition is here.

But in reality, the competitive forces were not as strong as Congress had hoped. There's been more industry consolidation than cross-industry competition.

Cable rates are up, with no sign of a strong competitor to slow them down. Local phone companies are seeking rate increases.

Those were all things we said at first. To date, this law has been an abysmal failure at bringing consumers what was promised: more choice, more services and lower prices.

It's possible to minimize the damage. The Federal Communications Commission has control over cable rates, if they just exercised it.

And federal and state regulators can hold the line on phone rates.

Until the public is upset enough to revolt -- and that will take rising cable and phone rates -- it's unlikely that it will be rewritten.

Pub Date: 5/17/98

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