Commentary: Memo To The Fcc: Make Deregulation Work

This could be the defining moment for the Federal Communications Commission--and for the $150 billion U.S. phone industry it oversees. The White House must name a chairman and, over the next few months, fill four vacancies on the agency's five-member board, just when the industry's painful lurch toward opening up competition appears to be stalling.

As things stand, the FCC is flirting with irrelevance. The agency was given broad powers to carry out the intent of the Telecommunications Act of 1996, a measure aimed at opening all phone markets to greater competition. Long-distance carriers haven't broken into local-calling, and the Baby Bells haven't launched long-distance service. Instead, the two sides snipe in public and battle it out in court. Giants such as Bell Atlantic Corp. and Nynex Corp. have decided to merge rather than compete with one another. And on July 18, a federal appeals court stripped the FCC of one important tool: its authority to regulate the prices charged by local phone companies for "interconnections" to their networks.

WHOSE RULES? That's why the next chairman, most likely William Kennard, now the FCC's general counsel, must move very quickly to prevent deregulation from devolving into a balkanization of the U.S. telephone system. Under the appeals court ruling, each state can fashion its own rules to set the speed at which competition comes to local calling. That could create an inefficient patchwork of 50 different rules rather than one federal standard.

The FCC still has ways to pry open markets across the U.S., despite the July 18 ruling. Under the Telecom Act, it has the power to deny the Bells entry into the long-distance market until they open up their local monopolies to rivals.

Taking that kind of action is just what the FCC should now do. A useful precedent: holding the Bells to the same conditions imposed on July 19 in the FCC's approval of the Bell Atlantic-Nynex merger. There, the two companies agreed to refrain from some of the games monopolists play to block new entrants. They also agreed to help local-service rivals by granting access to phone-company computers so that the upstarts can easily switch service for new customers.

The FCC could codify these and other standards in across-the-board rules. It should set up federal standards and deadlines by which the Bells would have to provide new rivals with electronic ordering systems that would make it as easy to change service providers as it is now in long distance. The FCC should also pass regulations to stop the Bells from imposing small inconveniences on customers who decide to switch service, such as not letting customers easily take their old phone numbers to a new carrier.

BULLY PULPIT. Meanwhile, the agency must exercise its prerogative under the new reform law to preempt anticompetitive rules at the state and local levels. The FCC should overrule a 1995 Texas law requiring the big three long-distance companies--AT&T, MCI Communications, and Sprint--to build their own local-calling facilities. The 1996 act says long-distance companies needn't lay their own fiber cable and copper wires--a costly proposition. They can choose to lease these components at a reasonable price from the Bells to get started in local business.

Kennard, if confirmed, should use his bully pulpit, too. Publicly naming companies that stymie competition or threaten to is an effective way of keeping telecom deregulation on the right track. Outgoing FCC Chairman Reed Hundt decried the very idea of AT&T's merging with SBC Communications Inc. instead of trying to compete with the Baby Bell in local service. AT&T and SBC scotched the plan.

While Kennard will stay busy tackling a large agenda--it will span wireless services, digital television, and cable TV--the first order of the day is the phone system. He will be judged on his ability to restore the promise of the Telecom Act. American consumers are counting on just that--and should expect nothing less.

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