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US telcom "reform" as an object lesson?

By Scott Bradner

The framers of the Telecommunications Act of 1996 aimed to ensure real competition for telecommunications services for both residential and enterprise customers. It's safe to say that few observers outside of the shrinking number of remaining major Incumbent Local Exchange Carriers (ILECs) think that the Act has achieved that aim. The non-success of the Act is explored in detail in a report recently submitted to the Canadian government in response to the government's request for comments on proposed telecommunications regulations.

The report titled "Avoiding the Missteps Made South of the Border" (http://www.mts.ca/commentsaug16/) was prepared by researchers Lee Selwyn and Helen Golding from Boston-based Economics and Technology (ETI), Inc. (http://www.econtech.com/). Economics and Technology, Inc. is hardly an unbiased observer. Their web page says that "For more than thirty years, Economics and Technology, Inc. has been at the center of national and international efforts to open formerly monopolized public utility markets and to bring the benefits of competition -- accelerated innovation and lower prices -- to consumers, large and small." But that does not mean that the report is short of facts to support the contention implied by its' title that the actual implementation of the Telecommunications Act has eliminated rather than enabled competition.

The key issue addressed by the ETI report is 3rd party access to the ILEC physical and electronic infrastructure --called "unbundled network elements" by the Act. This access, along with 3rd party resale of ILEC services and 3rd parties building their own infrastructure were the three basic ways that the Act assumed that telecommunications competition would be enabled. As the report details, the rules that mandated this access have been eviscerated by the FCC and the courts -- to such a degree that this option has been almost totally eliminated. The ETI report also details why the other two competition enablers have failed to enable competition in the real world. And as I've pointed out before (RBOCs: And then there were three (or maybe one) - http://www.networkworld.com/columnists/2006/031306bradner.html) there is no real competition between ILECs for non-wireless service. The statistics in the ETI report easily backup the contention that for most residential and enterprise customers there is no realistic competition for the ILECs in the broadband and non-cell phone markets. Because of this, there is no useful pushback on prices.

My main reaction in reading the ETI report was that the ILECs are nowhere near as dumb as most investors thought they were during the Internet bubble. Over $60 billion was invested in ILEC competitors, almost all of which have been driven out of business by the extremely successful lobbying and legal efforts. It's hard not to admire the competence of at least that part of the ILEC business.

The ETI report does not mention it but the lack of real competition to the ILECs makes the network neutrality discussion all that more important. (See Internet: "The end of the beginning" - http://www.networkworld.com/columnists/2006/050806bradner.html) With no meaningful competition we have to rely on the FCC to ensure fairness in the Internet business and this is the kind of thing the FCC has consistently failed to act on. (The ETI report has a number of other examples.)

It's apparently too late here in the US to do the right thing but Canada still has a chance - maybe they will listen but remember that the Canadian telephone carriers are not as dumb as they sometimes look.

disclaimer: Harvard generally tries to judge by actions rather than looks but that does not mean that everyone at Harvard is ugly, in any case the above is my own advice to the Canadians not the university's.