Struggling with deregulation

After reform, competition still seems a long way off


January 12, 2003|By Andrew Ratner | Andrew Ratner,SUN STAFF

A couple of blocks from the neon tempest of Times Square, the Harvard Club of New York seems an oasis of gentility.

With a hushed reading room stacked floor to ceiling with books and mahogany-clad walls adorned with hunting trophies and glowering portraits of Harvard scholars and benefactors, it doesn't appear to be a place where voices are often raised.

But on this particular winter morning, emotions and arguments pepper a conference there sponsored by the Manhattan Institute, a conservative think tank. The topic is telecommunications competition, and these days it's something to fight about.

"When I first saw the Telecom Act, I said it might work. But it doesn't work," Richard A. Epstein, a law professor at the University of Chicago, said, referring to the 1996 law that reformed the phone industry. "It's simply too much to expect people to collaborate with others who want to clobber them over the head."

Telecommunications would be at or near the top of a list of the most turbulent industries in the nation, if not the world. Equipment providers, including big names like Lucent Technologies Inc. and Maryland-based Ciena Corp., are shells of their former selves. The long-distance companies are price war-weary, none more than WorldCom Inc., whose accounting fictions triggered one of the largest bankruptcies in U.S. history. And some of the regional Bells are struggling, too. Dow Jones' telecommunications index fell 30 percent last year, and 60 percent since 2000.

Will this year be better?

"The airlines went cold turkey [in deregulating], which proved the wisest thing to do. With telecom, it has been agonizing. The end is simply not in sight at all," Alfred E. Kahn, the Cornell University economist whom President Jimmy Carter appointed to fight inflation and deregulate the airlines, told the New York gathering. He blamed the Federal Communications Commission and the executives of scandalized telecom and accounting firms for many of the industry's woes, or as he put it, "the over-regulators, crooks and liars."

Things might not get much better soon. They are likely to get louder.

In Washington, the industry's warring camps will attempt to prod a new Congress to either protect or dismantle the 1996 law meant to spur competition. Some wonder if a new Congress or Michael K. Powell, chairman of the Federal Communications Commission, will move to alter the deregulation structure that many say has failed.

The Bells, including Verizon Communications Inc., want the government to allow them to expand their broadband Internet business without making them share that infrastructure with competitors. The law requires them to do so for their phone networks. Lawmakers deemed that competitors couldn't be expected to afford to replicate what the Bell System built in an illegal monopoly.

The Bells also want relief from the requirement that they lease pieces of their extensive system to competitors at cut rates; competitors maintain that they can't compete without that provision and that it must be fairly priced.

Deregulation of other industries typically produced clear winners: the upstart Southwest Airlines Co. in air travel, CSX Corp. in rail transport, nonunion independents in trucking, said Harold Furchtgott-Roth, an FCC commissioner from 1997 to 2001 and former chief economist for the U.S. House Committee on Commerce. "But it's hard to point to any winners in telecom deregulation," he said.

Phone politics will heat up in Maryland, too.

The state Public Service Commission recently approved Verizon's entry into long-distance service - provided that the company charge competitors less to use its infrastructure, known in the industry as an "unbundled network element platform" or UNE-P.

Verizon's request to sell long-distance service under Section 271 of the 1996 Telecommunications Act is also subject to FCC approval.

"A lot depends on what happens here with the UNE rate decision and 271," said Don Laub, director of telecommunications for the state commission.

Maryland has some of the least-competitive UNE (pronounced U-nee) rates in the country. For instance, Verizon's price for leasing its internal switches to other phone providers is third- or fourth-highest in the continental United States, according to a survey by the National Regulatory Research Institute at Ohio State University.

The result: Competitors say they can't afford to compete on price and can't loosen Verizon's 94 percent hold on the local phone market.

"I'm hoping that fair pricing is something they would actually vote in favor of, because barring new UNE pricing, I don't see things changing much in 2003," said Maureen O'Connor, who leads a group called the Maryland Coalition for Local Telephone Competition. "I have trouble convincing people to join. `I've never had a problem, my call goes through,' they say. But I ask them why does it cost more to call Grasonville than New York City and they say, `Maybe you have a point.'"

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