Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

Businessweek Archives

Commentary: Telecom: Congress Should Reform Its Reform

News: Analysis & Commentary: COMMENTARY


As the anniversary of the 1996 Telecommunications Act approaches, it's becoming painfully obvious that Congress needs to take another look at the historic legislation. Despite the law's attempt to bring about a sweeping revamp of the U.S. communications industry by removing old regulations, it has yet to deliver its vaunted benefits to consumers. For many types of service, such as local calling and cable, most businesses and consumers still cannot choose among numerous competitors. Nor are prices dropping rapidly.

Few politicians--especially in an election year--are eager to start messing with a bill that took five years to pass. But the lack of competition may so undermine one of their most cherished mandates under the act--universal service, or the provision of affordable telecom service to all--that Congress may be forced to take another look.

EXPLOSIONS. Lawmakers got a glimpse of the battles ahead over universal service at the end of last year. It was time for the Federal Communications Commission to implement a provision to provide discounted Internet service to schools and public libraries through subsidies from long-distance and other telecom companies. But suddenly AT&T, MCI Communications Corp., and others balked. They said that the only way the money would be there was from a new charge on customers' bills. Lawmakers went ballistic, and the FCC is scaling back the program, which the agency had originally forecast would need $2.25 billion.

There is a far bigger fight to come. That battle will involve the funding of universal phone service subsidies to keep prices affordable for millions of rural Americans. The cost: Between $2.6 billion and $9.3 billion a year, according to phone-company estimates.

The universal service concept dates back to the old Bell System, which used artificially high business and long-distance rates to subsidize low local residential calling rates and pay for the upkeep of a national system. After the AT&T breakup, the pattern persisted. To maintain it now, however, consumers and businesses everywhere may have to accept much higher phone rates, which seems unlikely. "I predict there will be a backlash when the total cost of this becomes known," says Senate Commerce Committee Chairman John McCain (R-Ariz.).

The Telecommunications Act was supposed to make sure that none of this would happen. Here was the theory: With competition unleashed, telecommunications providers would vie for the most lucrative customers--business and urban users. The competition would then force companies to cut rates, adopt better technology, and find operating efficiencies. Then, after two years, the FCC would start to collect the money needed for universal service. This may have required small rate hikes, but rates would be so low that no one would complain. This, of course, is hardly where the nation finds itself.

That doesn't matter to rural-state senators across the political spectrum--from Ted Stevens (R-Alaska) to Byron L. Dorgan (D-N.D.)--who consider universal service sacrosanct. Two years ago, they refused to support the act without the program. Now, as universal service is threatened by the shortcomings of the telecom act, this bloc may be more likely to call for its reopening.

RATES RISE. That may be a good thing. Universal service isn't the only part of the act that isn't working. After a federal court overturned the many routes the FCC had proposed for long-distance carriers to break into the local-exchange markets, few rivals have been able to challenge the Baby Bell monopolies on their home turf. And since competition in local markets is a prerequisite for the Bells to enter long distance, few local phone companies are likely to break into AT&T and MCI's territory anytime soon either. Meanwhile, without vigorous competition from satellite providers and others, cable companies are raising rates. FCC Chairman William E. Kennard is even mulling a temporary freeze.

Before these disappointments lead to a widespread backlash against telecom reform, lawmakers should reopen the statute. Otherwise, the problems with the already unpopular legislation may lead to something that the U.S. can't afford: delays in building a telecommunications system for the information economy of the 21st century.By Catherine Yang

blog comments powered by Disqus