Federal Communications Commission Chairman Michael K. Powell is off to a good start in asking Congress for a bigger stick to whack the Baby Bells with when they keep competitors out of their markets. To the surprise of many, Powell wants to beef up FCC fines to force the Bells to obey the Telecommunications Act of 1996 and open their networks to competitors. It's not a moment too soon. Monthly prices for digital subscriber line broadband Internet connections charged by the Bells just went up 25%. Thanks to the widespread bankruptcy of telecom startups, the Bells face even less competition in their markets than ever.
When Congress passed the telecom law, it promised consumers a world of new services, lower prices, and, above all, more competitive choices. Cable and phone companies would invade one another's turfs, startups would wreck havoc, and the Internet would shake up traditional telecom oligopolists. It hasn't happened. Cable companies have been very slow in turning their "pipes" into conduits for local phone service. And the Bells discovered that their grip on the old copper "last mile" connection to homes and offices was really golden.
Five years after Washington acted to open up all telecom markets, only 3.2% of residences and small businesses currently get local service from non-Bell new carriers. In the long-distance market, prices have fallen 34% since the 1984 breakup of AT&T (T) and the advent of competition. But local phone prices are up 70.2% since that time. Cable prices are up substantially as well. And now prices that consumers pay for broadband connections are soaring, even as the wholesale price of broadband is falling to new lows.
Startup telecoms such as Covad Communications Group Inc. (COVD) and others charge that the Bells have consistently denied them access to the last mile or overcharged them, hurting profitability. Indeed, many telecom startups might not be in such deep trouble had they been allowed access to the Bells' networks over the past five years, as the law requires.
The fact is that Congress is largely responsible for the continued oligopoly in local phone markets. It told the FCC it could levy only ludicrously low fines when it wrote the 1996 Telecom Act. The FCC fines were so trivial that it made economic sense for the Bells just to pay them to keep telecom upstarts out. And they did. SBC Communications Inc. alone has paid the FCC many fines over the past five years.
It may be that wireless and direct broadcast satellite companies will bring some competition to the Bells in the years ahead. Cable companies may learn to deliver phone service as well. But the FCC cannot simply wait and allow the Bells to continue to shut out existing competitors. Congress should grant Powell enough discretionary power to force the Bells to follow the spirit, as well as the letter, of the telecom law. The rollout of broadband is a national goal of the highest order.