Your telephone problem is really a government problem

Before you get angry with America Online for the recent poor Internet connections, or the local phone company for busy lines, pause to consider that the main culprits for these annoying conditions may not reside in the concerned industries, but in government. The kind of bureaucratic mentality that created long lines at gas stations in the early `70s as a supposed solution to petroleum shortages is now out to assure “competition” in the burgeoning phone business. The perverse way they are going about it is a lawyer’s dream and customer’s nightmare.

Last year, Congress voted to “deregulate” telecommunications, six decades after regulation began and 12 years after a court-ordered breakup of AT&T. It was believed that this landmark bill would free exiting and potential competitors to enter each other’s businesses. Let everyone compete against everyone, anywhere, any time.

Telecommunications would become like our and virtually unregulated computer hardware and software industries that are the envy of the world. Services would improve and costs would be constrained by competition, not regulation.

But Congress worried that prompt deregulation of phone service would lead to undue advantages for the existing local service provides, mostly “Baby Bells” like USWest. Congress sought to assure long-distance carriers a chance to enter local service before the Bells get into long distance. Ominously, implementation of this process was turned over to the Federal Communications Commission.

Discovery Institute fellow George Gilder was one of the few technology observers to warn that asking a big federal regulatory bureaucracy to deregulate anything was like asking Louis XVI to cut off his own head. As of this week, the act is a year old and skeptics like Gilder have been proven right.

Thousands of new pages of FCC rules now try to anticipate, ordain and control the smallest market decisions. Of course, all this regulatory deregulation requires far more commission employees, too, so the FCC is expected to go to Congress for a 50 percent increase in personnel.

The regulators’ idea of how the local phone companies should open up their service to competitors from the long-distance carriers is to mandate that they sell their service to the competitors (for resale) at a price well below its actual cost. This mean USWest, for example, is supposed to invest money in new technology, such as fiber-optic cable to your home, and then provide it at a concessionary rate to, say, AT&T. Even then, they will not be allowed to get into the long-distance business for some years, and only after surviving a series of bureaucratic obstacle courses devised by the FCC.

Writes Yale professor (and Discovery adjunct fellow) Paul MacAvoy, “What should have been a `shakeout’ of corporate and regulatory practices that block the way to genuine competition has turned out to be a shakedown of potential entrants by government regulators favoring an established clientele.”

MacAvoy, a former member of President Ford’s Council of Economic Advisors, quotes his old boss to the effect that “the worse the regulation, the less likely it will change.” He wonders, therefore, if we aren’t stuck permanently with the present telecom setup.

Possibly so, and at great cost to consumers and businesses alike. The local phone carriers are now reluctant to invest as much in new infrastructure as they otherwise would have done. Their investments are being made in other areas of the economy or overseas — cable TV in England, for example, or fiber optics in Thailand. This is understandable, but it comes just when the soaring popularity of the Internet here in the United States is causing huge demands for phone line usage. Average call times are lengthening from 4-1/2 minutes to roughly 21 minutes, with no increased revenue. No wonder circuits are crowded. This is indeed the telecom equivalent of the gas lines of 1973.

To critics who think the phone companies somehow are gouging their customers and exploiting a monopoly situation, there is an easy answer: Look at the stock market. Bell stocks have not begun to keep pace with the rest of the technology field. Some are depressed. The market knows what the regulators refuse to acknowledge: The new Telecom Act is a fiasco.

Ordinary phone customers, as well as pension plans and individuals who own local phone company stock, are suffering the consequences. The present stalemate won’t even help the long-distance carriers in the long run. They are happy to have the FCC give them other companies’ lines and switches below cost. But that does nothing to expand the increasingly stressed U.S. telecom system. To avoid AOL messes, our households and enterprises require expanded networks, not strip-mined ones.

The only silver lining is that two of the few members of Congress who voted against last year’s Telecom Act, Sen. John McCain, R-Ariz., and Rep. Billy Tauzin, R. La., happen to be the respective chairmen of the Senate and House committees that will review the legislation, and the performance of the FCC, this session.

For now, however, don’t expect your Internet connection, or the call downtown, to get any easier.

Bruce Chapman

Cofounder and Chairman of the Board of Discovery Institute
Bruce Chapman has had a long career in American politics and public policy at the city, state, national, and international levels. Elected to the Seattle City Council and as Washington State's Secretary of State, he also served in several leadership posts in the Reagan administration, including ambassador. In 1991, he founded the public policy think tank Discovery Institute, where he currently serves as Chairman of the Board and director of the Chapman Center on Citizen Leadership.