How Not To Deregulate Telecom

The free market is a grand thing, guaranteeing lots of choice at low prices--providing, that is, that markets are really free. Deregulation-minded members of Congress are trying to open up the $1 trillion communications industry. But the latest House version of the bill could have the opposite effect: unregulated local phone monopolies able to stifle emerging rivals with their market clout.

One hesitates to criticize any effort to overhaul the telephone, cable, and broadcasting regulations. Five times in the past 10 years, Congress has tried and failed to modernize the 1934-vintage telecommunications law. This time, insiders are laying 8-to-1 odds that legislation will be ready for President Clinton's certain signature this fall. Ideally, the result would be a free-for-all, with local phone companies, long-distance carriers, and cable-TV operators contesting one another's business. The House bill, though, would let the seven Baby Bells that now control 98% of their markets stop such a scramble dead.

The Bells would be able to apply for long-distance entry six months after the bill becomes law. They would have to prove only that competition for local service exists, not that it's significant. Companies that want to offer local phone service, with little time to build their own networks, will have to buy from the dominant regional Bell and then resell. And there will be few controls on the price the Bells charge for that capacity. In sharp contrast, Bell companies wanting to resell long-distance capacity will have three huge suppliers--AT&T, MCI, and Sprint--to choose from and bargain with. The Baby Bells will also be able to cross-subsidize their long-distance business with local profits just 18 months after entry.

If Congress really wants a free phone market, with the competition and lower prices that come with it, it shouldn't be quite so generous to those local monopolists, the Baby Bells.

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