Commentary: Let The Telecom Dogfight Begin

Have you noticed much change in your phone service since the Telecommunications Reform Act was passed a year ago? Don't worry. Nobody else has, either. Letting local and long-distance companies compete in each other's businesses will eventually mean lower prices and increased choice. But competition is being delayed by endless disputes between companies that seemingly would rather fight it out in the hearing room than in the marketplace.

That leaves most consumers with the same choices--and prices--they had before "deregulation." Faced with high costs and other obstacles, long-distance companies are moving slowly into local service. AT&T resells local calling in only a handful of test markets, and MCI Communications Corp. has focused its local efforts on business customers. Meanwhile, the Baby Bells can't offer long-distance service until they prove that they face effective competition in their markets. So far, not one Bell has been able to prove that to regulators' satisfaction.

MORE CLOUT. What's the cost of this standoff? No one knows exactly. But in the local market alone, competition could cut costs by 20%, which amounts to $50 million a day, estimates industry consultant Andrew Seybold.

It's time to cut the red tape and let true competition begin. Here's one way: Give state regulators the power to impose severe penalties on companies that thwart competition. Provided with that extra clout, regulators could let companies into new markets more quickly--knowing that they have an effective recourse in case of wrongdoing.

It's understandable that state and federal regulators have been reluctant to let the Bells into long distance. Several of them have revealed their anticompetitive tendencies by dragging out negotiations over letting new entrants resell their call-carrying capacity. One recent trick is for Bells to force local competitors to fax them orders when customers want to change carriers: The faxed orders often are delayed or full of errors.

Clearly, Bells that deliberately block local competition deserve to remain barred from long distance. And state regulators should continue to make sure that the Bells comply with a 14-point checklist mandated by the Federal Communications Commission. Among other things, the FCC says that local incumbents must offer newcomers access to their local-calling networks at fair prices.

Sometimes, though, determining whether a local phone company has cleared all the hurdles is a judgment call. So to speed up deregulation, it makes sense to find ways to let competitors get into new businesses easily--while giving the authorities the power to swiftly punish anticompetitive practices.

Illinois is ready to try this approach. A bill passed by the state Senate in late March gives the Illinois Commerce Commission power to fine phone companies, including Ameritech Corp., for anticompetitive behavior. The financial penalties the commission can impose have jumped to $30,000 per day per violation, up from $2,000. Says Patrick O'Malley, the Republican state senator who sponsored the bill: "You need teeth in the enforcement mechanism."

BROAD SUPPORT. Georgia's state senate recently passed a similar bill. It increases fines to $15,000 initially and $10,000 per day per violation--up from $1,000 and $500, respectively, now. Many other states, in contrast, cannot even fine the Bells for acting anticompetitively. Colorado regulators, for example, must get court approval before they can impose any financial penalty.

The Illinois law has won broad support among telecom companies. AT&T, MCI, and Sprint have all publicly backed it. AT&T's top executive in Illinois says he'll recommend using the bill as a model in other states that want to speed up competition. Even Ameritech supports the legislation, arguing that the penalties won't matter because it will play fair. "It's a good solution to put in safeguards to satisfy the skeptics," says Peter Vujaklia, vice-president at Mercer Management Consulting. If the skeptics are satisfied, telecom customers can start seeing the savings that have only been a promise for more than a year.

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