Don’t Call Us, We’ll Call You
The Telecommunications Act of 1996 hasn’t stimulated competition among local telephone service providers.
There are two reasons for this. One is that the provision of local service really is a natural monopoly and competition doesn’t make economic sense. The other is that the local telephone companies are skirting the intent of the law by using their monopoly and local lobbying powers to stifle potential competition.
The goal of the act was to increase competition among providers of telecommunication and video services. At the local level, it was premised on the expectation that CATV companies would compete with local telephone companies in the provision of telephone service and that local telephone companies would compete with CATV companies in the provision of video services. But this has not happened. This year, many CATV companies have halted their interactive trials and acknowledged that they will not be providing local telephone service over their coaxial cables in the foreseeable future.
Another possible source of local competition would be from the long-distance companies, but AT&T; and MCI have stated recently that providing local telephone service would be much more costly and difficult than they originally had anticipated.
There are tremendous barriers to entering the local telephone business. Considerable investment in the installation of physical facilities is required, for example, the copper wires of the local loop along with the people, trucks and warehouses to maintain the facilities.
Another barrier to entry are all the state and local regulatory bodies from which approval must be obtained. Local telephone companies have a tradition of considerable influence with their state regulators, and some regulators all too frequently appear more interested in protecting the regulated.
Since telecommunication is interstate, the rationale for state regulation of the industry is very weak; the regulation of telecommunication should probably be done solely at the federal level by the Federal Communications Commission.
The local Baby Bell telephone companies lobbied to be allowed into the provision of long-distance service, and the Telecommunications Act allowed that only if they opened their local business to competition. But they do not like the rules set by the FCC for competitive interconnection at the local level and have been dragging their feet.
These delaying tactics might be because the local telephone companies have discovered that their local monopoly is far more profitable than long-distance, and they no longer want to lose their monopoly just to market long-distance services.
The local telephone companies were very profitable last year; the 1996 after-tax profit margin for SBC Communications was 15.1%, for Bell Atlantic, 14.4%, and for NYNEX, which struggled with single-digit profit margins for years, 10.9%.
Some of the parties appear to be having a love fest. Incestuous mergers between the Baby Bells are occurring, and rumors circulated that the former parent, AT&T;, wanted to marry one of its babies. The old Bell system that was broken up more than a decade ago is coalescing with the acquisitions of Pacific Telesis by SBC and of NYNEX by Bell Atlantic. As if on the surface of a sphere, while moving apart, the entities of the old Bell System are also coming back together. And very recently, WorldCom (the No. 4 long-distance company) is in the process of acquiring MCI (the No. 2 long-distance company).
What all these mergers suggest is that the operation of the telecommunication network is a natural monopoly and that the forces of this monopoly are causing the industry to coalesce. In the new landscape that might evolve, the network infrastructure might be provided by a single entity, but the marketing of services would be provided in a competitive environment by many parties.
While fear of the unknown is understandable, the solution is not to impede the forces of coalescence but rather to allow them to occur to create a new telecommunication landscape, whatever might evolve.
