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August 28, 2006

The Wall Street Journal Is Wrong: The US Doesn’t Have Competitive Telecom

In an editorial today The Wall Street Journal says:

“How much competition is there in U.S. telecommunications? So much that even California regulators have finally noticed. Last week the state's Public Utilities Commission voted 5-0 to lift decades-old price controls on land-line phone companies.”

I don’t think we need to regulate telephone rates but the telecommunications marketplace in the United States is becoming steadily less competitive.  at&t CEO Ed Whitacre is well on the way to reconstituting the old AT&T whose demise was supposed to mean the end of monopoly.  This time the monolith includes now crucial Internet and wireless services which didn’t exist in the 1980s.

Further exhibiting its cluelessness, The Journal (with which I usually agree) goes on to opine: “The good news is that these state regulators have finally acknowledged that … holding residential phone bills below actual cost is silly in today's brave new telecom world.” Apparently The Journal thinks that the price of providing telephone service has gone up in the last several decades.  In fact it has plummeted to a tiny fraction of what it used to be along with all other data services. 

Moreover, the value to the owner of the last mile connection to subscriber’s residence is much more than just the revenue from outgoing calls and the monthly line rental fee.  Local phone companies get paid for all incoming “long distance” minutes to a phone AND  get the opportunity to sell enhanced services and DSL on a favored basis.  Hell, they even get the chance to charge you for NOT listing your number.

Unfortunately more indicative of the state of telecom competition in the US is the lead from this story today in the New York Times:

“When the government’s multibillion-dollar auction of radio spectrum licenses began two weeks ago, it looked as if newcomers might get the chance to buy their way into the mobile phone business, leading to more choices for consumers.

“But now the country’s biggest cellular providers appear poised to win many of the 1,122 licenses up for auction, allowing them to expand their reach and reducing the chance that a new entrant might bring down prices.”

And who owns these cellular providers which have succeeded in “reducing the chance that a new entrant might bring down prices”? Traditional telephone companies is the answer. Hmm…

The greatest threat from a new entrant is that it would use these frequencies to provide voice as just one more data service just as Skype does with Internet-based phone service.  That would collapse the margins in wireless which is where phone companies now get a huge share of their profits.

It is true that cable is providing some competition to traditional telcos in both voice and data service. This is a good thing and may be why we don’t need price regulation.  But a duopoly does not mean we get all the benefits we could expect were there true competition.

Here are some signs of insufficient competition in the United States:

  • The relative slow speed and high price of broadband here as compared to most other developed countries.

  • A regulator (the FCC) which seems more intent on using regulation to slow competition (antiVoIP rulings, for example) than to enable it.

  • The reconstitution of AT&T.  Latest step underway is the proposed at&t acquisition of BellSouth.  Following the SBC acquisition of Ma Bell herself.

  • The monopoly on lobbying that the former “baby bells” have now that their lobbyists are no longer opposed by lobbyists from AT&T and MCI (who were also very good).

  • The arrogance of network providers in saying they should be paid twice for use of the Internet – once for connections (fair enough) and again for use of those connections (as in charging Google not just for its connection but for sending us stuff over its connection and ours).  There would be no need to worry about enforcing net neutrality against such nonsense IF there were true competition in broadband in the US.  Net Neutrality is NOT an issue in the UK, for example, where real competition and deregulation have made the issue moot.

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