Commentary: Power To The States? It Won't Work In Telecom

In the the Republican-dominated Congress, deregulation and devolution go hand in hand. Scaling back regulatory agencies and shifting responsibility back to the states are reactions to a federal bureaucracy that seems impervious to market realities and a Congress where special interests write the laws.

Sounds like a perfect way to get around the muddle of telecommunications deregulation--in one fell swoop, circumvent the Federal Communications Commission and end the decade-long battle among industry groups that has stymied attempts to rewrite 60-year-old telecom law. Indeed, while Washington has fiddled, 23 states have started to deregulate local-calling monopolies. Many of these same states have paved the way for communications companies to bring out new technologies. One example: When Bell Atlantic Corp. applied for a license to offer video over its phone lines in Toms River, N.J., it took the state a few months to grant approval--and the FCC two years.

WELCOME RELIEF. But when it comes to telecommunications, a state-by-state solution is no solution at all. And no less a devolutionist than Newt Gingrich says so. On Nov. 30, he warned House and Senate conferees to get cracking on a compromise measure so it can be ready for a vote before Christmas. The speaker, an Information Age enthusiast, recognizes that it could be disastrous to once more postpone passage of a bill to free the nation's local phone companies, long-distance carriers, and cable-TV operators to compete with one another.

Anyone who doesn't want to see the most advanced communications network in the world break down into a patchwork quilt of incompatible regulations should welcome a federal bill. "If Washington doesn't get its act together, the states will act--but it will be much more piecemeal and confusing," says Marion Boucher, telecommunications analyst with Bear Stearns & Co. That will further delay improvements in the telecom system that would benefit the economy and all Americans.

Worse, no state has the power to do the whole job. States can allow competition in local-calling markets. But they can't grant a basic form of regulatory relief: letting local phone companies into the oligopolistic long-distance business--which could vastly increase competition.

That's not to say that the federal solution in the works is an ideal one. In fact, telecom insiders say the final bill will be light on deregulation. The measure will likely run to well over 100 pages, replete with dozens of new rules outlining how the industry will deregulate. "This legislation changes telecom policy from a permanent monopoly regulatory model to a transitional regulatory model," says Scott Cleland, an analyst with the Washington Research Group. "Congress is seeking to introduce competition wherever possible, all the while preserving universal telephone service." That's a tall order, which may explain why Congress plans to punt most of the detail work to the FCC.

Leaving implementation to the FCC, industry executives fear, could slow the arrival of new competition and services. The agency will have to resolve such complex issues as the rates that local carriers may charge for reselling their services and the establishment of a new nationwide universal-service fund, as well as determining at what point each local phone company has successfully met a series of competitive tests before it may offer long distance.

Even the healthiest of agencies would be hard pressed to do all that, and these days, the FCC is not operating at its peak. It is hampered by bitter infighting among its commissioners, and it faces a 20% budget reduction.

Still, while the pending telecom bill may be far from perfect, it is the best chance we have to let loose a set of industries that pull in some $1 trillion in revenue each year--one-sixth of the U.S. economy. It's time to set them free.

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