U.S. Chamber of Commerce Calls For Telecom Reforms

The study -- called “Sending the Right Signals: Promoting Competition Through Telecommunications Reform” - - urged regulators to phase out mandatory network-sharing rules and, more immediately, end regulated wholesale rates set at theoretical costs. “A policy forcing network owners to lease their assets below rates yielding a market return on investment is essentially a tax on capital,” the study said. It said such a tax on existing capital “reduces the asset’s market value” and affects new capital by “discouraging investors from creating additional network assets and from spending to maintain existing assets. As a result, telecom networks suffer from aging and increased obsolescence.” The study said both factors, along with financial market pressures, reduced telecom capital spending. For example, it said, annual capital spending in all areas of telecom dropped to $56 billion in 2003 from $132 billion in 2000. It estimated the loss of capital spending due to regulation was more than $20 billion for incumbent operators and $2-$3.5 billion for competitors. “Government regulatory disincentives to investment should be removed as impediments to [the telecom industry] recovery,” said Thomas Hazlett, senior fellow at Manhattan Institute for Policy Research and a study co-author.

The study said unnecessary regulations could stall the emergence and development of new technologies such as VoIP. “The opportunity for VoIP is tremendous but it does run into the universal service system,” Hazlett said: “The current universal service system needs to be fixed and VoIP is a great opportunity to do that.” Analysis Group Vp Coleman Bazelon, another co-author, agreed, saying problems created by the universal service “touch on all other areas. It’s clear that the reform has to happen.” Hazlett said it wasn’t just VoIP pushing universal service reform. He said another impetus was the transition to wireless: “How much sense does it make to pay to wireline [companies] that provide service in an inefficient way?”

The study recommended regulators: (1) “Phase out mandatory network-sharing rules.” (2) “Make 438 MHz of prime radio spectrum available for commercial wireless operators.” (3) “Exempt high-speed cable modem and digital subscriber lines from common carrier regulations.” (4) “Make Internet services not subject to state phone service regulations.” (5) “Raise funds for universal service directly from general tax revenue, rather than from hidden costs that penalize telecommunications competition and the growth of network services.” (6) “Distribute universal service finds directly to targeted consumers.”

The study estimated that if the proposed regulatory reforms were carried out, the telecom sector and the U.S. economy would benefit from: (1) $58 billion in new capital investment over 5 years. (2) $167 billion in GDP increases driven by investment-led economic growth over 5 years. (3) An additional $467 billion in GDP growth driven by increased productivity. (4) “A combined effect of both supply and demand channels totaling $634 billion of additional goods and services, including $113 billion in new tax revenue over 5 years.” (5) “An increase in average employment levels by more than 212,000 jobs.” (6) “Added consumer value from price competition and new services.” (7) “Enhanced U.S. competitiveness in the global marketplace.” (8) “Accelerated rollout of new technologies and advanced networks in knowledge-based industries and applications.” (9) “Achievement of social goals such as universal service.” Meanwhile, the study warned “each year of delay will cost the U.S. economy about $12 billion of investment spending and about $33 billion of GDP and will deter the creation of more than 212,000 jobs.”

Asked which presidential candidate would come closer to making the reforms, Bazelon said: “We really don’t have an answer to that question… This has not been the focus of debates between the candidates.” Hazlet agreed: “There is a tremendous opportunity here and I don’t think either candidate has jumped in there. Both candidates have said they want broadband to be a priority… The idea of saying you have goals is one thing, but actually putting a program together and particularly in the midst of a political campaign is [another]… I think things are pretty hazy out there at this point of time and it’s hard to know which program would be closest to this passage.” But NTIA Deputy Asst. Secy. John Kneuer said: “I think you'll see a lot of what’s recommended in the report in the current Administration’s policy.” He said he wouldn’t comment on Kerry’s policies in that area, noting that he had “not seen anything substantive there.” Asked whether the FCC and the Bush Administration could carry out the recommended reforms without going to Congress, he said it would be hard to do under the current Telecom Act.

The study received mixed reaction from the industry. BellSouth CTO Bill Smith commended the authors, saying they did a good job documenting that “the costs of outdated regulatory policies are doing American consumers and the economy far more harm than good.” For example, he said fiber-to-the-curb deployment was slowed by lack of clarity of federal rules governing its rollout, and broadband-on-demand was more difficult to manage under the current regulatory structure. He said VoIP was another example of a technology that had “far outpaced the obsolete regulatory framework in the U.S… We need to have an environment where we can invest our shareholders’ money.” He said in general, he agreed with the study recommendations, but said “one flaw” was the recommendation wholesale access based on theoretical costs should be “phased out.” “There is a need for urgency in eliminating these rules quickly as opposed to a phased transition,” he said: “I don’t think we have a lot of time because changes that are coming from new technologies could make this debate irrelevant.”

AT&T Vp-Federal Govt. Affairs Carol Wilner criticized the study, saying it was “not independent or comprehensive.” She said “two issues that would have been included if it had been a comprehensive study” were intercarrier compensation and special access reforms. “It is essential that if we are going to drive this industry [to realize its full potential] that we bring the industry together and address discrepancies of the intercarrier compensation reform,” she said: “The universal service reform should be done in a holistic, comprehensive way, and the way we can do it is through intercarrier compensation reform.” She also said it was important to address special access to introduce competition to the small business market, where she said it was missing, and to prevent spreading of such lack of competition “disease” to the enterprise market. Wilner agreed with the report recommendations on the need for light regulatory touch as applied to VoIP and for reform of the universal service. But she said: “I am not in favor of any unbundling recommendations because they come straight out of Verizon filings.”