-
Chapter 1. Introduction
- Brookings Institution Press
- Chapter
- Additional Information
Ten years ago, most of the world’s telecommunications companies were state-owned monopolies, performing much like the post offices from which they had sprouted in the early decades of the twentieth century . Those in the United States were different: they had never been government -owned, and the private national operator, AT&T, was broken up in 1984 to ensure greater competition in long-distance and equipment markets. Twelve years after the breakup of AT&T, Congress passed the 1996 Telecommunications Act, opening all telecommunications to competition and launching a new era in the sector.1 No one could have guessed how this era would unfold. As I describe in this book, “competition and chaos” have enveloped the sector as it gropes toward a new order. This is not to say that the U.S. experience is unique, for similar tumult has descended on most of the world’s telecom sector over the past six to eight years. It differs, however, in that U.S. regulators were the first to venture into this brave new world of heavily regulated competition.2 Furthermore, many of the regulators apparently thought that they could steer a steady course in this direction, with limited disruption.3 As I demonstrate, they not only failed to achieve this objective, but they contributed—and continue to contribute—to the chaos.4 Congress invited them to manage competition, and they did so with a vengeance. As this book goes to press, there is little indication that regulators have learned any lessons from the past nine years.5 1 Introduction 1 01-1617-6 CH01 3/8/05 7:12 PM Page 1 2 Introduction Regulation, Deregulation, and Competition For decades, the Federal Communications Commission (FCC) and state public utility commissions had regulated telecommunications through an uneasy division of responsibilities.6 The state commissions oversaw intrastate services—local connections and messages that traveled wholly within a state’s borders—and the FCC interstate services. It was not until the late 1970s that the courts clarified the role of the FCC in regulating (or deregulating) the terminal equipment used by businesses and households to connect to the network. Subsequently, the FCC grudgingly admitted competitors into interstate long-distance services, but most states steadfastly continued to refuse to allow competition for most intrastate services. Although regulation might be designed to control monopoly pricing, in telecommunications it was used primarily to redistribute income from businesses to residences and from urban areas to rural areas.7 This redistribution , which has been defended as “universal service” policy but in fact contributes little to the universality of telephone subscription, continues more than twenty-five years after the FCC began allowing competition, twenty years after AT&T was broken up, and nine years after the 1996 act was passed.8 Moreover, the implicit subsidies built into the regulated rate structure can continue only if regulators prevent competition. Many discussions of recent U.S. and other telecom policies begin with the notion that the sector is in turmoil because of “deregulation.” On the contrary, U.S. policy since 1996 has been far from deregulatory. Local retail telephone rates, intrastate long-distance rates, carrier connection rates, and even high-speed business rates are still highly regulated in most states. More important, the “deregulation” introduced by the 1996 act ushered in a complex new set of regulations involving the provision of wholesale services by incumbent local carriers to their new competitors. Since that time, a large number of other countries have followed the United States in erecting similar wholesale-access regulations to promote competition. In a later chapter, I analyze the effect of the new regulatory regime on competition and prices in local telecommunications in the United States, but for now it is worth noting that telecom liberalization has diverged from earlier policies in the transportation and energy industries. In the 1970s and 1980s, the United States opened the airline, air cargo, trucking, and railroad industries to competition without increasing regulation. Indeed, the commissions regulating these industries were soon abolished, along with most rate regulation. Congress did not find it necessary or prudent to 01-1617-6 CH01 3/8/05 7:12 PM Page 2 [107.23.157.16] Project MUSE (2024-03-28 17:16 GMT) Introduction 3 require carriers in these industries to sell their services or lease their facilities to rivals at regulated rates. By contrast, legislators viewed a large part of the distribution network in telecommunications, and later in electricity, as a natural monopoly. As a result, the 1996 act instructed...