James Wilson is the kind of guy who makes Federal Communications Commission Chairman William E. Kennard's day. When the House committee lawyer and his wife bought a house in Washington three months ago, they bypassed local phone giant Bell Atlantic Corp. and went completely wireless. They make all their calls via a Sprint PCS wireless phone. At $50 a month for 500 minutes, they pay about the same as they did before they cut the cord. "We decided to take a leap of faith, and it worked," he says.
The Wilsons are blazing a path toward an appealing future, according to Kennard. But it's probably further away than he would like. More than three years since the 1996 Telecommunications Act passed, Kennard says market forces are emerging to challenge the Bells' control over connections to the home. "Wireless will break the back of the Bell monopoly in residential local markets," says Kennard. What's more, he says, as wireless competes with the Bells' voice services, phone startups and new cable-modem services are providing competition for high-speed Internet access. NorthPoint Communications, for example, is offering services that turn copper phone wires into high-speed digital subscriber lines, or DSL.
WORK IN PROGRESS. What Kennard is championing is something of a Third Way. It's the idea that wireless and DSL are bringing competition to residential telecom services. First, the FCC had hoped that new rivals could enter the Bells' local-phone market by leasing lines at a discount. That has been slow going. More promising is AT&T's effort to offer local phone calling and broadband data connections via cable-TV pipes. But even that won't deliver widespread benefits to consumers for years.
Give Kennard credit for embracing the power of the free market to boost competition. He helped champion wireless auctions that brought in new carriers, drove prices lower, and attracted new customers in droves. There are about 69 million subscribers today, compared with 24.5 million four years ago, according to the Cellular Telecommunications Industry Assn. With at least three competitors in almost every market, Kennard argues, wireless is becoming a legitimate alternative to traditional phone service.
If only. For all its growth, wireless is still largely a complementary service. In a Yankee Group Research survey of 3,300 wireless phone users, only 2% said they use it as their only phone--a number that will rise to a modest 6% in two years. "I don't think there's a near-term risk that wireless will take more than a very tiny percentage of voice traffic," says Douglas G. Smith, CEO of wireless carrier Omnipoint Corp. in Bethesda, Md.
To make wireless a credible rival to the wired phone, the FCC must change rules that favor the Bells. For example, most people in the U.S. pay for all incoming wireless calls. That discourages consumers from using their phones. Under a proposed policy, they would pay for outbound only. The FCC should also continue to urge the industry to move faster in installing systems that let users switch their wireline phone numbers to a wireless phone. The FCC has set a Nov. 24, 2001 deadline.
UNFAIR EDGE. The outlook for imminent competition in the residential market for high-speed Net access is brighter. Now, the Bells require their rivals to buy a second phone line to the customer's home to deliver DSL service, while they themselves deliver DSL over existing local phone lines. Clearly, this is an unfair advantage. "If you want to catch a bus, you can catch an existing bus or wait for a new bus to be built," says Dhruv Khanna, general counsel of DSL startup Covad Communications. On Nov. 18, the FCC will vote on the issue and likely put both sides on equal footing. The upstarts normally pay $20 a month for the second line, but they would have to pay only $2 a month for an existing one. And they wouldn't have to wait for a month or so while a second line is installed.
Regulators can't rely on market forces alone to break down barriers. They have to help level the playing field for fledgling rivals, just as the FCC and courts forced AT&T to open up its lines to startup MCI years ago. Without that help, consumers will be waiting a long time for greater choice.