Call waiting

February 25, 2003

THE HEIR to the local Bell phone monopoly, Verizon, called the other day offering a few more services, such as call waiting, and a slightly lower total bill. More features, less money? When a company has about 95 percent of the market, that's a sign more competition's on the way.

With that in mind, last week's Federal Communications Commission decision - to continue requiring Verizon and other former regional Bells to lease their systems to local phone competitors - benefits consumers. But related FCC decisions last week - on broadband and state regulation - aren't so clear-cut. And in the long haul, as the nation moves to wireless and broadband, these could prove more critical.

The uncertainty typifies the protracted complexity of deregulating telecommunications. Competition was successfully introduced to long distance service by the 1984 Bell breakup, but a 1996 federal law allowing competitors to offer local service - by leasing parts of the former Bell system at wholesale rates - has produced spotty results.

Ideally, local deregulation would mean companies vying to offer lower-cost packages of local, long distance, wireless and broadband service. In reality, that's only occurred in certain states such as New York - and even there Verizon still has about 75 percent of the local market.

In general, this is because the former Bells have waited for state orders to force them to lower their wholesale rates enough for competitors to want to enter the market. These orders have usually come with a lucrative trade-off: permission for the former Bells to enter the long-distance market.

That just happened here: The state Public Service Commission recently ruled Verizon must lower its wholesale rates (while backing Verizon's desire to offer long distance service here). So years after local phone competition began elsewhere, it's just now starting in Maryland, where Verizon still has about 95 percent of the market.

Frustrated with this sloth and under pressure from the former Bells, FCC Chairman Michael K. Powell last week tried to scrap the 1996 local phone deregulation rules. But in a humiliating defeat, the commission kept the rules for local phone competition.

Significantly, however, it opted not to force the former Bells to share their broadband lines, leaving cable firms as the former Bells' only competitors for high-speed Internet access. With broadband proliferating too slowly, this should encourage the former Bells to invest more in fiber optic lines to more customers. But broadband rates likely will go up.

Most problematic may be the third major FCC move last week, shifting more telecom decisions to the states, which Mr. Powell termed a "Picasso-like" regulatory scheme. Balkanizing an already difficult deregulation doesn't appear to help matters.

The way out of this protracted mess may be through the continued rapid expansion of freely competitive wireless services, which did not arise under a monopoly. This hope was given some credence last year when the number of the nation's local lines fell for the first time since the Depression. A fully untethered world of telecommunications remains distant, however, and until then the call of true deregulation still waits.

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