# Telecom Competition Can\'t be Managed

By Harold Furchtgott‑Roth

Published in the Wall Street Journal

## Monday, December 27, 1999

Last week the Federal Communications Commission approved Bell
Atlantic\'s application to provide long‑distance service to customers in
New York state ‑‑ the first time it has ever granted such permission to
a Bell Operating Company. Pundits are busy claiming that the FCC\'s
decisions means (1) lower long‑ distance rates in New York and
substantially higher profits for Bell Atlantic, (2) a return to the good
old days of Ma Bell and (3) a triumph for \"managed\" competition. None
of these are likely to be true:

‑‑ Profits and prices won\'t change substantially. Long‑distance telecom
services are competitive in New York and around the nation even without
Bell Atlantic\'s participation. Hundreds of companies are already in the
market, and except for the Bell Operating Companies, there are no
barriers to entry.

Until recent years, consumers paid several dimes and nickels for every
minute of long‑distance usage. Today, consumers pay only a nickel a
minute for the same call. The actual cost of providing long‑distance
usage is substantially less.

Prices have fallen, and will continue to fall, not because of the entry
of one more corporate competitor, but because of competitive pressures
to remove distorting regulatory fees on long‑distance services,
euphemistically labeled \"access charges.\" Long‑distance customers do
not pay these charges to local telephone companies for the trivial
incremental cost of a phone call. Rather, they pay for the substantial
fixed costs of phone service generally. Why should long‑distance
customers pay for costs they do not incur? They pay for them only
because most consumers have no current alternative.

The Internet and Internet telephony are rapidly providing means for
consumers to make long‑distance calls with no usage‑sensitive charges.
These Internet services are driving down the prices of long‑distance
services, with or without Bell Atlantic. It stands to reason that if
long‑distance services are already competitive, Bell Atlantic won\'t
capture windfall profits by entering this market.

Given the enthusiasm with which Bell Atlantic and the other Bell
Operating Companies (SBC, BellSouth and U S West) have pursued approval
from the FCC to enter long‑distance, these companies must think they can
make a profit from these services. Bell Atlantic will naturally capture
some of the market, and there may well be some profits from exploiting
synergies with existing services. But don\'t expect Bell Atlantic to
capture most of the market, or to be wildly profitable as a result of
long‑distance entry.

‑‑ Ma Bell is still dead. To hear some pundits tell it, one would
believe that in the old days consumers could get any and all
telecommunications services from one company and that consumers will
now, for the first time since Ma Bell\'s demise in 1984, be reintroduced
to one‑stop shopping. Poppycock.

The good old days weren\'t so good. Today there are hundreds of services
that were not dreamed of when Ma Bell lived, and no company ‑‑ not even
Bell Atlantic ‑‑ can conceivably offer everything. Many companies
already offer both local and long‑distance service. GTE, Sprint and
hundreds of smaller local companies have offered long‑distance services
for years. But, with few exceptions, the long‑distance affiliates of the
local companies do not dominate local markets, and there is no reason to
expect Bell Atlantic to dominate long‑ distance service in New York. Nor
have the local companies currently providing long‑distance service been
more profitable than the larger Bell Operating Companies that have been
prevented by the FCC from offering these same long‑ distance services.

‑‑ Bell Atlantic\'s entry into long‑distance does not mean the FCC is
successful at \"managing\" competition. All levels of American
government have for generations stifled competition in many lines of
business. For example, a mere four years ago, it was illegal for
practically all long‑distance companies to offer local service (or any
other service), and vice versa. To apply to offer any service required
hundreds of lawyers, scores of lobbyists and the patience of Job.
Government agencies erected elaborate decades‑long games of \"Mother,
May I?\" for would‑be telecommunications providers to which the ultimate
answer was as likely as not to be \"No.\" Most telecommunications
property was operated only with government approval, and contracts
between willing buyers and sellers were strictly prohibited without
prior government consent.

The 1996 Telecom Act wiped away most legal barriers to entering all
telecommunications markets for both new and incumbent companies. It
relaxed many forms of price regulation, and required the FCC to weed out
bad regulations every two years. The centerpiece of the law is its
reliance on private contracts, rather than government edicts, to
determine the relationships between businesses.

Hundreds of new companies raised tens of billions of dollars to enter
new markets. Incumbent companies, including Bell Atlantic, raised even
more money to enter new markets. In New York state today, more than 100
companies offer some form of local service, hundreds of others offer
long‑distance service, and many others offer varied data, video and
other services that defy labels. Four years ago, their offerings would
have been illegal. Today they simply happen through normal market
mechanisms, with minimal if any oversight from the FCC.

Bell Atlantic is the only company that needed specific FCC permission to
enter a particular New York telecom market. And the decision was pretty
automatic once certain criteria of the 1996 law had been met. The FCC
has followed the law in the case of Bell Atlantic, but not in other
cases ‑‑ for example, in attaching unlawful conditions to Ameritech\'s
transfer of its licenses to SBC.

The commission and its \"Mother, May I?\" game are becoming increasingly
irrelevant in defining the structure of telecom markets. The FCC has
many regulatory decisions to make in the future, and if it won\'t fully
implement the deregulatory aspects of the 1996 Telecom Act, American
consumers have a powerful new ally: Internet‑based services. These
largely unregulated services threaten to sweep away generations of
archaic telecommunications regulation. Good riddance.