Science

INDUSTRY ANALYSIS

Regulating Telecom Regulators for the Sake of Innovation

California wireless customers suffered a blow last week when the state Public Utilities Commission (PUC) voted to approve a pile of harmful regulations. The misleadingly named “Telecommunications Consumer Bill of Rights” is poised to raise mobile-phone bills and tie businesses in red tape.

“The PUC has overreached its regulatory responsibilities,” said California Governor Arnold Schwarzenegger in a statement. “This measure will impede growth in the highly competitive wireless industry and could result in companies shifting investments and jobs outside of California.”

Finally, a high-profile leader recognizes the damage state regulators are capable of causing in the telecommunications industry — and he’s not alone. California PUC commissioner Susan Kennedy offered terse words for her fellow members.

“It’s a good thing this Commission is not held to the same standards as the companies that do business in California,” she said. “Because, if we were, today’s decision would be an open and shut case of false and misleading advertising.” The answer to the question of who is regulating the regulators appears to be “no one.”

Protecting Consumers?

Under the rubric of protecting consumers, Commissioner Kennedy said her Commission’s rules will do nothing more than “launch a frenzy of litigation, expand bureaucracy, increase costs to consumers and make it more expensive to do business in this state.”

Not a great prognosis, but at least someone is willing to acknowledge that the emperor has no clothes. For too long, state public utilities commissions have been able to operate as though everything they do is in the public interest simply because they say so.

Whether or not these bold statements will result in a wave of reform remains to be seen, but at least it’s a start. And they may offer a more promising picture than what telecom customers see at the federal level.

President Bush has said he wants ubiquitous broadband rollout by 2007, but he hasn’t said much about how to get there. The Federal Communications Commission’s (FCC) rules requiring incumbent telephone companies to share their networks at regulated rates were tossed out by a D.C. Appeals Court for a third time in March, but the Bush Administration has been silent. If there was ever a time to explain the benefits of small government and less regulation, it would be now. So why the wait?

Deregulation and Private Deals

Perhaps one of the problems is that telecom has been regulated for so long that it’s hard for even small-government types to let go. Just as people in the former Soviet Union had difficulty when presented with the idea of democracy, so does the long-regulated telecom industry have issues with deregulation and privately negotiated deals. A case in point is the recent Sage-SBC deal.

After the Appeals Court negated many of the FCC’s rules, the agency encouraged telecom providers to “begin a period of commercial negotiations designed to restore certainty and preserve competition in the telecommunications market.” Not long after, Sage Telecom and SBC announced that they’d agreed on a seven-year deal. Normally, an announcement of this sort would be routine. But in the telecom world, state utilities commissions — as well as the FCC — couldn’t restrain themselves from meddling.

Michigan’s Public Service Commission demanded mediator status so it could determine if the deal was in “the public interest.” California, Texas and Kansas commissions have made it clear they want to approve the deal, and the FCC apparently has requested negotiating information — not exactly a typical market-based process. And then there’s the issue of appealing the D.C. Court’s decision.

Litigation over Market Principles

This month, the Bush Administration will decide if it will seek Supreme Court review of the D.C. Circuit’s ruling. If the case is allowed to reach the high court, it will be a disappointing indication that the current administration prefers litigation over market principles.

It will also mean that the goal of ubiquitous broadband by 2007 will be more difficult to achieve.

In a June 1st letter to President Bush, 23 high-tech firms wrote that a “revived telecom manufacturing industry” would create “974,000 new jobs, including 72,000 new telecom manufacturing jobs alone.”

The time has come to free telecom and regulate the regulators. Vested interests and others must stop blocking reform so that jobs can be created, honest deals can be made and consumers can benefit from increased innovation.


Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.


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