Wholesale/transport services

Fed Reg Debate Heats Up

As the Federal Communications Commission (FCC)'s review of regulations in the telecommunications industry approaches completion, the cheerleaders on either side are working themselves into a lather.

Wednesday, the Telecommunications Industry Association (TIA) decided to dive into the debate headfirst. Backing up the incumbents' line of defense, the organization sent a letter to FCC Chairman Michael Powell outlining the findings of a study it has done on the link between cuts in carriers' capital spending and a decline in quality of service (see TIA: Capex Cuts Cripple Quality).

"[T]he recent and projected broad downward trends in capex should cause alarm bells to go off among regulators at every level,” TIA president Matthew J. Flanigan writes in the letter. “Concrete action must be taken quickly to restore the balance between regulation in service of the public interest and the creation and maintenance of a regulatory environment that will promote investment and shareholder value.”

The Bells have been arguing for months that the FCC should dismantle the 1996 Telecommunications Act regulations that oblige them to let their competitors lease access lines and network elements at set wholesale prices. They insist that the regulations are causing them to lose money and dissuading them from investing in their networks (see Whitacre: Regulations Will Wither, and SBC's Fed Up, But So Are Its Critics).

While TIA is pushing hard for the FCC to remove regulations on broadband, it claims not to have a position on whether or not the agency should dismantle the entire unbundled network elements platform (UNE-P). “We haven’t gotten involved in that particular exercise,” says David Owen, the chairman of TIA’s public policy committee. However, the organization’s report, which shows how Ameritech’s customer complaints exploded as the company cut capital spending in the 90s, is bound to be used by the RBOCs to support the argument for a complete end to regulations.

The report cautions that the huge reduction we’re seeing now in incumbent capital spending will have dire consequences. “Nothing good has come out of the ILECs feeling inhibited to make investments in their networks,” Owen says.

Other organizations have been voicing their support for getting rid of, or at least scaling back, regulations. Dan Phython, senior vice president of law and policy at the United States Telecom Association, speaking on a panel at the UBS Warburg telecom conference in New York yesterday, said: “If the Commission does the right thing, there will be more spending on the side of the incumbent carriers.”

At the other end of this debate, the competitive carriers and their supporters have been equally vocal in their resistance to dissolving regulations, insisting that would mean an end to competition altogether (see AT&T's Dorman Disses RBOCs, and Report: DSL Is Profitable). The Bells aren’t losing money and cutting capital spending because regulations treat them unfairly, they argue, but because they don’t know how to compete.

"The Bells need to learn to be wholesale carriers... They’ll make a lot more money if they do,” said Robert McDowell, the vice president and assistant general counsel of the Competitive Telecommunications Association (CompTel), speaking on the UBS Warburg panel yesterday. “UNE-P is here to stay... Two to three years from now, it won’t look a lot different than it does today… You can’t just pull the plug on UNE-P.”

While the FCC itself insists that no decisions have been made, industry observers believe a compromise is in the works. “There will be constraints put on UNE-P,” UBS Warburg analyst John Hodulik said after the discussion. “There’ll be something more favorable for the Bells. The question is how favorable.”

“There will be no winner,” opined Robert C. Atkinson, the director of policy research and special projects at the Columbia Business School. No matter what the FCC’s decision turns out to be, he insisted, individual states will continue to play a major role. “The FCC just couldn’t come up with an optimal decision that works equally as well in Manhattan and in Kansas."

The FCC has said that it will try to reach its decision on whether or not to dismantle the regulations by year-end, but that the process could stretch into the new year.

— Eugénie Larson, Reporter, Light Reading
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DarkWriting 12/4/2012 | 9:20:41 PM
re: Fed Reg Debate Heats Up RJM,

You are trying to convert the "Dumb Republicans" again. Like Reagan, they want it their way or the highway no matter what history says to them. They have enjoyed 200 years of a strong government keeping the playing field level but cannot see the forest for the trees. They actually think they are rich making 100K/yr. Give it up. (Got to hand it to them though, at least they are smarter than the "Dumb Democrats" and got off their asses and voted. Although now they take that as some sort of mandate???)

BTW, we did give the communications infrastructure to the private sector, Bernie Ebbers and Worldcom. Look what happened there. The free marketers cooked the books and dumped prices trying to run their competitors out of business. Short term result, low prices for consumers and fat paychecks for executives. Long term results, workers with their retirement gone and back to the same system as would have existed anyway.

whyiswhy 12/4/2012 | 9:20:39 PM
re: Fed Reg Debate Heats Up Let me post it here, since you obviously did not even go to the link:

In practice, however, government monopolies usually seem to have been operated as "cash cows" for the government, and that's not a solution to the problem of high monopoly prices! It has been quite common around the world (for example) for public telephone monopolies to raise the price of telephone service to pay the deficit of the postal system. Poor telephone service at a high price is the predictable result.

RC,DW, I think the term "in practice" refers to historical evidence. There is no reason to believe that the government operates under any different motivation than private industry.

Quite the contrary: they are the biggest practitioners of monopoly control.

I presently pay over 50% of my money to the government, what with sales, income, social security, real estate, vehicle, gas, and luxury taxes, to say nothing of bridge tolls...to the feds, the state, the county, and the city.

Not one of my other bills (generated by private industry) compares within an order of magnitude. That means by a factor of ten.

The only rational person that would think that is a good deal is one who depends on my cash coming to them through taxes.

Get some energy, get an education, get a job in private industry, get off welfare, and get me a medium latte!

OSPGuy 12/4/2012 | 9:20:39 PM
re: Fed Reg Debate Heats Up Cable telephony: Cox just announced a $500+ million investment in upgrading their coax infrastructure to support voice.
At the end of Q2, 2002, 2.1 million lines of cable telephoney were in service.

Cable Modem: 2:1 advantage in market share over ADSL.

Cellular telephony: American cellphone usage has been growing by 67% per year for the past 5 years.

Vonage.com: 'nuff said.

POTS line growth has stopped, and may even be in decline, in the US for the first time since 1933.

So by what measure can anyone possibly make the claim that the RBOCs are a monopoly? That's like saying the Ford Motor Company has a monopoly on the Taurus automobile. Technically true, but meaningless.

So the RBOCs have the telephone lines. But they are facing an onslaught of competition from cable, cable modem, cable telephony, cellular phones, and even satellite services.
Ramu3 12/4/2012 | 9:20:38 PM
re: Fed Reg Debate Heats Up re: ": Cox just announced a $500+ million investment in upgrading their coax infrastructure to support voice."
How do you invest $500+ million when you have nearly $8 BILLION debt, $13.4 BILLION in total liabilities, only 600 million in cash, and NEGATIVE $560 million in net income for the past 4 quarters?

That would be like financing 2 new Lamborghini Murcielagos after buying a fully-furnished Beverly Hills mansion with zero down, owing bookies half a million, and working at a soup kitchen where you pay for all the food.
whyiswhy 12/4/2012 | 9:20:37 PM
re: Fed Reg Debate Heats Up Same way they spent $2B last two years running...this is just a drop in the bucket. I am not sure I would want to be a shareholder. OTOH, I am glad they are buying!

PS: Income schmincome, that's for uncle sam...look at the cash...it keeps getting better.
rjmcmahon 12/4/2012 | 9:20:32 PM
re: Fed Reg Debate Heats Up But they are facing an onslaught of competition from cable, cable modem, cable telephony, cellular phones, and even satellite services.

There will be no facilities based competition. This is pure deception by those attempting to monopolize our public rights of ways. Again, it's like Henry Ford claiming a small portable generator competes with Samuel Insull's electrical transmission lines. Or that a truck can compete with Kinder Morgan's pipelines.

The competition we must have will enable free speech. Unbundling is required for this to occur. Let the others go the way of the honda generator.
rjmcmahon 12/4/2012 | 9:20:32 PM
re: Fed Reg Debate Heats Up In practice, however, government monopolies usually seem to have been operated as "cash cows" for the government, and that's not a solution to the problem of high monopoly prices!

whyiswhy; I'd agree that public monopolies run by self interested bureaucrats is not efficient, that there could be situations where a private monopoly may be bettter, and the vast majority of of the time a competitive marketplace is preferred. (Unless of course one takes the perspective of a business owner who has little desire to constantly compete, wants zero bureaucrats "in the way", and would make the most from a monopoly position especially from controlling public resources.)

But first, it's nice to see we're getting to the understanding that last mile is a natural monopoly and that those promoting facilities based competition, including wireless, are merely trying to obfuscate that by feigning that competition exists. One suspects they do this in hopes of deceiving policy makers from addressing the truth.

The goal of competition is to supply the *entire* market as efficiently as possible. In the case of the natural monopoly, this goal is extremely difficult to achieve. This difficutly stems from the observations that human self interests seem to always to take priority over altruistic ones. And it's in the interest of those controlling a possession to maximize their return from any exchange. In the case of the monopoly, the purchaser has no choice but to pay the price set by he holding possession.

The monopolist quickly learns the best way to maximize his wealth is to serve only a portion of the market, i.e. the ones who pay the most. (It's not much different in our pseudeo democratic government where too many value their winning an election over the participation of the voting public. Look to fights over voter registration for an example of that.)

So the policy maker has a dilemma. Self interested bureaucrats with limited ability for innovation vs. self interested businessmen whose tendencies are to serve only a portion of the market.

Between these two evils, and especially for a communications infrastructure which is a foundational pier for democratic social contract, I choose the bureaucrat who attempts to serve the public good. When he stops in his attempts to serve the public good, the market participants can speak by voting him out office.

PS. Attempting to construct ones ego by belittling those that serve us coffee is not only poor conduct, it is destined to fail. Serving others may help you to understand. Give it a try. It really won't hurt, and if it does, go back to cluttering your mind with worrys about your tax payments.
lastmile 12/4/2012 | 9:20:31 PM
re: Fed Reg Debate Heats Up When will the era of fraudband end?
Cable/DSL gives us no more than 1.5 MB/s and that too only when the user rate is < 10%. At times dial-up is far superior to cable/DSL.
Many of my friends have given up cable/DSL and have reverted to dial-up because todays "killer app" works with a simple dial-up connection.
What the world needs to realize is that unless the average consumer gets a true broadband connection the IT industry will continue to live in this dismal state and will ultimately perish.
The Chicken and Egg dilemma will be solved only when a true broadband connection is available to the average consumer.
The Egg is the killer application of tomorrow and the Chicken is the fraudband of today.
Will the FCC help us with a solution or do we need to go to KFC for help.
BobbyMax 12/4/2012 | 9:20:29 PM
re: Fed Reg Debate Heats Up All RBOCs have been losing money because of the enactment of Telecom Act of 1996.It is very extensive proposition for ILECs to unbundle network elements. The network elments were build after 3-4 decades of work. Typically these are over 56 nodes that participate in providing total service to customers. Besides these nodes were built by Bell Labs scientists afer a lot of very difficut and complicated research.

Both ILECS and IXCs have suffered a tremendous losses and now have very diminished capability to provide local and long distace service.

One now can make long distance calls within the US borders for less than 6 cents a minute. Providing service at this rate is very difficult for all RBOCs. Tpically each of the RBOCs have more than 60 thousand personnel. How can they survive on these ridiculous charges.

Long distance service is even worst. Anybody can now lease long distance long lines from AT&T or other IXCs for a very nominal price and charge double the they pay to IXCs. There are some momand pop type of carriers that p[ride services to China, INdia, UK, and Japan etc. at ridiculously low prices. The people who lease lines from IXCs should pay should share all the expenses that IXCs incur.

Finally I must mention that the Telecom Act of 1996 has done so much damage to the US economy that it should be scraped. This act has caused a lot of spurious companies to appear on the scene and very soon our service providers telephone infrastructure would be worst than those in the thirds world countries.
fw23 12/4/2012 | 9:20:28 PM
re: Fed Reg Debate Heats Up >All RBOCs have been losing money because of the >enactment of Telecom Act of 1996.It is very >extensive proposition for ILECs to unbundle >network elements.

Given that the CLECs are nearly all out of
business, how exactly did the act of 1996
force the RBOCs to lose money. Who are they
losing business to?

>One now can make long distance calls within the >US borders for less than 6 cents a minute. >Providing service at this rate is very difficult
>for all RBOCs.

For RBOCs, long distance is supposed to be a new
market which was opened up by the telcom act.
If long distance calls are such a bad business,
why are the RBOCs spending so much money to
expand their presence in the business?

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