Senator John Ensign’s proposed new telecommunications law, the Broadband Consumer Choice Act of 2005 (S. 1504) would be the most positive step Congress could take to revive the telecom sector. The Ensign bill would limit the FCC’s ability to pick winners and losers and the cities’ ability to stall video competition while they extract cash and freebies from franchise applicants.
When Congress passed the Telecommunications Act of 1996, it gave scant consideration to an exit strategy that would remove the heavy hand of government. Competition is now thriving in telecom and cable, but regulation and taxes hinder investment. Nowhere are the consequences of regulatory micro-management more painfully evident than in the telephone sector. Under the vaguely-worded Telecommunications Act of 1996, the FCC embarked on a disastrous “pro-competition” policy by which it attempted to guarantee the immediate success of new entrants via resale and arbitrage. To its credit, the FCC now recognizes that the policy diminished incentives for investment in advanced services or is unsustainable. The agency is moving, albeit slowly, in a positive direction. A difficulty is that some of the new entrants want to keep below-cost access to incumbent networks and other regulated advantages. They form a political constituency that argues, predictably, that the telecommunications industry is somehow not suitable for deregulation.
But recent earnings reports all confirm that a competitive transformation has occurred in the telephone market. As George Gilder recently told a group of reporters, “The local loop is the most competitive arena in the global economy, with wireless, 3G cellular, cable, wireline, satellite, even the power companies involved, and new generations of technology launched every year.”
Consider, for example, that there are now more mobile phones in use than there are fixed telephone lines. The Census Bureau reports that 5% to 6% of all households have wireless phones only. Many other Americans view their mobile phone as their primary phone. In South Korea, which leads the world in broadband deployment, 65 percent of the respondents to a recent survey make all or most of their calls from a mobile phone.
Consider that cable broadband is now available to 93 percent of U.S. households passed by cable, according to NCTA’s mid-year overview, and that with it the cable industry can or soon will be able to offer Internet phone service nearly everywhere. Kagan Research showed cable VoIP subscribers increased 55 percent between the 4th quarter of 2004 and the 1st quarter of 2005.
The cable industry has invested nearly $100 billion since 1996, because, unlike the telephone industry, Congress largely deregulated cable companies.
Cable now faces formidable competition from direct broadcast satellite providers and, potentially, from the telephone companies who still must obtain franchises from 30,000 local jurisdictions. The franchise regime dates back to a time when cable companies were sole providers. That is no longer the case, and the Ensign bill appropriately eliminates most franchise requirements for all competitors (including cable companies). This would not be unprecedented. Congress had to set limits on video franchising in 1984 because the cities wanted too much. Congress also preempted local taxation of direct broadcast satellite services in 1996.
The proposal would also establish a sensible national policy allowing municipal broadband networks, but requiring that municipalities first make the same favorable terms and conditions available to the private sector. It is one thing for cities to satisfy unmet needs but another to favor their own ventures with special breaks.
The Ensign bill, as well as a major telecom reform bill that is expected from Energy & Commerce Chairman Barton in the House, provides an opportunity for Congress to set clear policy favoring competition over regulation. It is time for Congress to step up to the plate.