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Telecom Experts to FCC: Back-Off

Without question, the last two years have been the worst of times for the once promising telecom sector.
“Is telecom dead?” John Stanton, CEO of Western Wireless and VoiceStream, asked rhetorically. “The answer is no, but there are symptoms that are not positive.”

At a forum Wednesday, “Re-Igniting the Tech Economy: Your Stake in the Next Boom,” Stanton made it clear that Seattle has a major stake in this telecom comeback.

Stanton has seen his company’s shares plummet 90 percent from an all-time high, now hovering at a fraction of the 1996 IPO price.

The picture is equally challenging for other Eastside telecom interests, including AT&T Wireless, VoiceStream and Nextel Partners. The wired and wireless sectors lost $2 trillion in equity value in the last two years, he noted.

According to the panelists, industry cycles that require dramatic restructuring are part of the sink-or-swim equation. Even bankruptcies are a natural by-product of the free market system.

But they saved their greatest criticism for government regulations that have left the sector bruised and battered.

“The more Clinton-era rules we can undo, the better,” said John Wohlstetter, a senior technology fellow at Seattle’s Discovery Institute. “The good news is, under Michael Powell, we are seeing an end to regulatory Caesarism.” Powell is chair of the Federal Communications Commission.

Wohlstetter and panelists said regulatory agencies’ enforcement of the 1996 Telecom Act has created a hostile environment for companies with sound economic plans, and forced several into bankruptcy.

George Gilder, chair of Gilder Publishing and a senior fellow at the Discovery Institute, said the FCC in the late 1990s micro-managed competition and prevented telecom companies from engaging in standard tactics to maintain market share. Among the abuses, he said the FCC forced telecom companies such as Verizon to make “uneconomic entries” into markets for minimum periods of time or pay fines to exit those markets.

Delivering the keynote speech Wednesday, Gilder called the Enron collapse a “trivial event” compared to the telecom collapse.

“Enron bet wrong on the price of oil, of bandwidth and on the price of politicians,” Gilder said. “It went bankrupt — that’s what capitalism is supposed to do.”

He faulted politicians and the media for advancing the “crime wave theory” that blamed telecom CEOs for poor business plans that pillaged their customers and workers. “There’s a general sense out there in the business world that there are all these felonious criminal characters,” he said. “The great crime wave theory assumes that CEOs can predict the future.”

The future looked bright for telecom in the late 1990s. But the Federal Reserve’s monetary policy, which included a series of rate hikes in 2000, added significantly to the telecom carnage that soon followed — as sources for capital expansion quickly dried up.

The fiber optic revolution of the late 1990s was a “scintillating success” that allowed Internet traffic to increase 3,000 fold between 1996 and 2002, Gilder said. The fiber optic glut that became the downfall of many companies in the broadband sector was mostly caused by a dearth of broadband access to business and homes, he said. Bringing fiber optic lines near homes is the key to spurring more interest in broadband — faster connections mean more online use. But faster connections will mean less regulatory intervention, Gilder contends.

The government must also ease restrictions on vertical mergers between local and long-distance firms — creating full service, end-to-end providers with the scale and scope needed to enter new markets, Gilder said.

Another factor inhibiting the way telecoms do business has been merger regulation, Stanton said. Merger deals that take up to a year in the U.S. are completed in one-tenth that time in Europe and the United Kingdom. The U.S. Criminal and Antitrust divisions of the Department of Justice, as well as the Committee for Foreign Investment were all involved in the VoiceStream-Deutsche Telekom acquisition.

Stanton added that, in some cases, the costs associated with receiving regulatory approval have been greater than the economic value to Western Wireless of moving into new markets.

In the area of reforms, Gilder suggested the FCC should have to decide on merger applications within 90 days.

G. Mitchell Wilk, a public policy research expert, said “we have to shift the burden” onto regulatory agencies to prove the economic value of their policies.

“We have to make this the first day of a new campaign to start talking about genuine unregulation of the industry,” Wilk said. “We have to end the relic of utility oversight — don’t just mend it, end it.”

Sam Bennett can be reached at (206) 622-8272 or by e-mail at [email protected]