CABLE VS. TELEPHONE : NEWS ANALYSIS : Regulators’ Telecommunications Dilemma : Technology: They seek to foster innovation while protecting the consumer.
As phone and cable companies trample old legal and regulatory barriers to bring new voice, video and computer services into their customers’ homes, telecommunications policy-makers face a couple of tough questions.
The first, of course, is what should they do? A less obvious but more important question is, what can they do?
The lightning pace of change in what was once a set of discrete monopoly businesses appears to have left regulators feeling overwhelmed and bewildered. Fueled by technological advances and market imperatives, these businesses are rushing headlong into one another, leaving regulators with some difficult choices.
On the one hand, they can’t stifle what appears to be one of the most promising parts of the American economy. But they remain under considerable political and consumer pressure to maintain low rates, open competition and broad, if not universal, access to the nation’s telecommunications networks.
Can the regulators catch up with the marketplace? And assuming they can--or want to--what role should they play in shaping the development and direction of the nation’s new information highway?
These questions have assumed new urgency in the wake of moves within the last 10 days that further blur the historical boundaries among telephones, televisions, computers and the companies offering them.
American Telephone & Telegraph last week said it would buy McCaw Cellular, gaining the right to offer local wireless phone service in direct competition with local phone companies. On Tuesday, the nation’s No. 3 cable concern said it will offer video access to the sprawling Internet computer network. Also on Tuesday, a federal district judge cleared the way for the nation’s phone companies to begin offering video programming in their home territories.
Earlier this year, U.S. West, the Denver-based telephone company serving the Rocky Mountain territory, bought a 25.5% stake in Time Warner Communications of New York, the nation’s No. 2 cable operator. And last year, Southwestern Bell, the St. Louis-based telephone company for five Southern states, bought two cable companies in Virginia.
“It’s absolute chaos,” said Alfred Sykes, former chairman of the Federal Communications Commission and now president of Hearst Corp.’s new media and technology group in New York. “In a rapidly changing environment, the old regulations are proving to be arbitrary and unnecessary. The regulators should just get out of the way.”
Arguably, legislators and regulators over the last decade have created much of the situation they face today.
To spark competition for existing monopoly communication providers, they rewrote laws and rules to encourage new service offerings and lower prices for consumers. And to protect the new entrants from being pounced upon by the old monopoly operator, they established artificial business barriers in the form of a web of new regulations.
But now these barriers are under assault by both business interests and a rush of new technology that is blurring the distinctions between traditional telephone and television services. And as new business entrants are lining up and alliances are formed between former adversaries, the once-tight web of regulations is unraveling, leaving the regulators holding a patchwork remnant of old laws and rules.
“Congress and the regulators have known these rules have been dinosaurs for years,” says Peter Bernstein of Probe Research in New Jersey. “The only problem is that they don’t know how to fix it.”
The easy way out would be to walk away and let the marketplace decide who gets what service for what price. But there are worries that millions of Americans could literally be left out of the loop. Bernstein has his own idea: Scrap all existing regulation and develop a new system of rules that focuses only on the broad issues of access, fairness and universal service concerns.
But Congress, which has received millions in telecommunications campaign contributions during its debate over the turf battle, isn’t likely to oblige.
With huge monopoly operators such as the phone companies and cable systems rushing into each other’s business, there are lingering suspicions that the much-heralded competition between the titans will quickly give way to cozy deal making. The result: one monopoly operator controlling television and telephone service instead of the current two.
“Preventing one monopoly from buying another in the same territory may be the most important job regulators can have today,” says Peter Hampton, an analyst at Yankee Group, a Boston technology research firm.
Rep. Edward J. Markey (D-Mass.), chairman of the House telecommunications subcommittee, agrees. He says government must ensure that the consumer is protected from price gouging by monopoly phone companies. Legislation, says an aide, is already in the works to make sure telephone ratepayers are not forced to subsidize phone companies’ speculative forays into cable TV.
