POLICY EXPERTS EXAMINE TELECOM ‘MELTDOWN,’ HOW TO CURE IT
Policy analysts struggled to place blame for downturn of telecom sector Fri., deciding there are many causes and just as many culprits. At seminar on Capitol Hill sponsored by Progress & Freedom Foundation (PFF), consultant and PFF fellow Larry Darby said exercise was like game of Clue, with people sitting at power lunches throughout Washington trying to decide if Col. Mustard did it and what weapon was used. There are many culprits to choose from, such as managers of start-up firms armed with “RBPs -- Rotten Business Plans,” investment community armed with “greed and myopia,” regulators, Congress, he said. Legg Mason analyst Blair Levin said blame-finding effort was more like Agatha Cristie’s “Murder on the Orient Express” where it turned out all the suspects were to blame.
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Terry Barnich, managing dir. of New Paradigm Resources Group and ex-chmn. of Ill. Commerce Commission, said causes could be traced to 3 deadly sins: Excess, gluttony (which he said also could be defined as imprudence) and pride. Excess was “everywhere,” he said. “Overestimation of what was possible led to over-availability of… money” which led to 2nd sin, imprudence, Barnich said. Wall St. was imprudent by rewarding over-investment, he said. On sin of pride, Barnich said that “apart from investors and those in the executive suites, this jacket fits snugly on the backs of policymakers.” Solution may be “humility and temperance,” he said, urging policymakers to take hands-off approach rather than changing regulation. “To recalibrate the regulatory structure now would add more volatility,” Barnich said. “More regulations could make it worse.” Looking at situation from consumer perspective shows “things aren’t that bad,” he said. “If you live and work in a major market you have choice,” Barnich said. “CLECs have 12% of the national market” and there also is competition from other areas such as wireless, IP telephony, Wi-Fi networks, he said, recommending regulators “stay the course, buttress enforcement and get out of the way.”
Telecom meltdown, as seminar called it, is real, unprecedented and its causes vary depending on subsector, said Darby, who is former chief of FCC Common Carrier Bureau. Among its causes were “overexpansion of credit capacity, underestimation of risk” and, in general, more firms starting up than ever could be viable. Darby urged regulators should take “do no harm” stance, “learning from previous experience” of regulators who “didn’t anticipate the result of their rules.”
Levin said investors won’t feel it’s “safe to go back in the water” and invest in telecom unless one of 3 things happens: (1) Opportunity for increased revenues goes up. (2) Cost of operating networks goes down. (3) Change in market occurs that will lead to one of first 2 items happening. Levin said there are regulatory actions that could increase revenues, such as: (1) Deregulating retail offerings. (2) Deregulating rights of way because it’s not proper for cities to see rights of way as revenue source. (3) Revising spectrum policy to allow more flexibility. Levin said he thought telecom sector would return to viability on its own and govt. shouldn’t intervene. Economist and PFF Vp Thomas Lenard said he disagreed with those that recommend “staying the course” because he has “difficulty seeing how you can get the investment needed with the incentive structure” that now exists in Telecom Act and FCC rules.