January 31, 2003

January 31, 2003 | Commentary on Regulation

The FCC's Local Competition Report: Surprise!

Like a snail in a sprint, the Federal Communications Commission is rushing towards a decision on its local competition rules. Michael Powell announced this week that he expects the Commission to meet its February 20 court deadline for its revised rules, in fact to beat it by a week.

 

That's welcome news.  How much reform there will be, however, is still a question mark. The mere prospect of action has sparked howls of protest from defenders of the regulatory status quo. The message has been simple:  competition to the Bell monopolies is weak and uncertain, with challengers rocked by failure. Loosening the rules now would mean the death knell for the competition hoped for in 1996.

 

It's a nice clean storyline, and sure to be all over the media - no matter how timid the final FCC decision is. But - as shown in stats just released by the FCC - competition hasn't been a failure. It's actually doing pretty well, although the greatest competition has come from a source not contemplated in 1996.

 

Of course, this doesn't mean the last few years have been good to investors in competitive carriers. From a high of some $86 billion, CLEC capitalization was down to $4 billion at last count, and the number of CLECs has diminished from some 300 to less than 100.

 

Despite these numbers, telecom competition is hardly on the rocks. In fact, according to the latest report by FCC stats guru Peyton Wynn and his staff of number crunchers, there's more competition in local telephony than ever before.  They found (as of June 2002) CLEC's held 21.6 million - or 11.4 percent - of all telephone access lines. That's a 10 percent increase over the beginning of 2002, and a 26 percent jump over a year earlier.

 

These numbers, however, tell only part of the story - and not even the most important part: the phenomenal growth of competition from cell phones and other mobile wireless providers. Once a purely supplementary telephone service - too expensive to use regularly - the price of wireless phone service, combined with it functionality, is making it a prime substitute for old-fashioned wireline service. The number of subscribers is vast - 129 million, compared to 167 million ILEC lines. Of course, not all of these use their wireless phone as a substitute - but an awful lot do.  A smallish but significant number -- 6.5 million -- don't even have a wired phone. More telling, about one in six (18 percent) consider their wireless phone their primary phone.

 

Ironically, this competitive challenge wireless was not contemplated by the authors of the 1996 act - that legislation barely referenced mobile wireless services at all. And the technology hardly figured in the seven-year drama of regulation and litigation over competition rules that have followed.  Instead, after the initial assignment of spectrum, Washington has largely left the industry alone.  Despite - or perhaps because - of this neglect, consumers have been rewarded with a competitive success story.

 

So, if things are going well, why should the commissioners change the current rules?  First, while wireless competition is largely facilities-based, the same cannot be said about the more traditional LEC competitors, which use their own loops for less than 30 percent of their lines. Real, facilities-based, competition is the goal, and as several judges have hinted, is discouraged by the current rules. The second reason has nothing to do with voice competition - the damage done to broadband and other new technologies could dwarf the consequences in the voice market. It is for these new technologies of the 21st century, rather than the old ones of the 20th, that reform is most needed.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Originally appeared on Competitive Enterprise Institute