Debate Grows on Future of Telecom Act

Amid growing complaints about cyberporn, high cable-TV rates and lackluster telephone competition, a federal judge has thrown telecom reform another curve that could spark Congress to revisit the Telecommunications Act just two years after the landmark measure was passed.

U.S. District Judge Joe Kendall in Wichita Falls, Texas, struck down a key provision of the Telecommunications Act, a step that could allow the regional Bell phone companies to quickly enter the lucrative $90-billion long-distance industry.

The surprise New Year’s Eve ruling, which throws out a complex regulatory checklist lawmakers approved to ensure that local phone markets were competitive before the Baby Bells could offer long-distance service, shocked many lawmakers and regulators here. It is to be appealed by the Justice Department and the Federal Communications Commission.

Kendall’s ruling adds to what was already an uncertain legislative climate for the law. Although the chances of wholesale revisions to the measure are remote, this year does bring midterm congressional elections. Many key lawmakers already are moving to mine political capital from what they believe is widespread public disenchantment with key provisions of the act.

Industry and congressional sources say Sen. John McCain (R-Ariz), chairman of the Senate commerce committee, and Sen. Conrad Burns (D-Mont.), chairman of the Senate communications subcommittee, plan to hold oversight hearings aimed at examining how well the Telecommunications Act has worked.

McCain, who voted against the law, has long favored jettisoning the current checklist of telephone rules and adopting a quicker timetable for letting the regional Baby Bell telephone companies into the long-distance business. Judge Kendall’s ruling, a congressional source said, may give McCain additional leverage to initiate change.

Meanwhile, Rep. Peter A. DeFazio (D-Ore.) has introduced a bill to freeze cable rates. Sen. Daniel R. Coates (D-Ind.) also is pressing ahead with a bill that would replace the Internet indecency provisions in the Telecommunications Act, which were struck down by the Supreme Court in June, with language he hopes will pass constitutional muster.

“In the first two years [after telecom reform] people said, ‘Just wait, it’s too early to act,’ ” said Gene Kimmelman, co-director of the Washington office of the Consumers Union. “But when all you see is rate increase after rate increase and no real competition in any major market area, you’ve got to raise a question about whether Congress should become concerned about its handiwork.”

Added Kevin Gooley, a telecommunications analyst at Standard & Poors Consumer Markets: “I think there may be some serious attempt at revisiting telecom reform. It’s an election year and the fact that the law hasn’t really worked could produce enough political groundswell to get Congress to look at it again.”

Signed into law by President Clinton in February 1996 after one of the most protracted and tortured legislative battles in U.S. history, the Telecommunications Act is aimed at lowering prices and promoting greater competition in communications services. The main provision of the law set ground rules under which cable-TV operators, telephone companies and broadcasters could move to enter one another’s markets.

But the law has ignited a firestorm of litigation, as GTE Corp.--the nation’s third-largest local phone company--and the five regional Bells have filed more than a dozen lawsuits challenging a law they had publicly embraced a few months ago as a good compromise.

Even some federal regulators who supported the law have indicated it may now need some fine-tuning.

“I am disappointed with the progress we have made thus far in introducing competition” to the telephone industry, said William E. Kennard, chairman of the FCC. “I think there are areas we could suggest where the law might be clarified or improved.”

But because the battle to enact telecom reform was so arduous--involving countless delicate compromises among fiercely competing industries--even those who aren’t 100% satisfied with the law concede that fiddling with the complex measure would be akin to opening Pandora’s box.

James X. Dempsy, senior staff counsel for the Center for Democracy and Technology, says his Washington-based Internet advocacy group is supporting a number of legislative initiatives aimed at insulating the global computer network from special government taxes and content regulation. But he is wary of such fine-tuning inspiring a wider reopening of telecom reform.

“From the point of view of the Internet community, we would rather see discrete pieces of legislation than a wholesale overhaul,” Dempsy said. “We fear legislation more than we favor it. We don’t want to get into a broader opening of issues because then it may get out of control.”

What’s more, experts say lawmakers should give telecom reform at least another year to work. They argue that key court decisions and new FCC regulations that take effect this year may finally unleash the wave of competition that lawmakers originally hoped for.

The U.S. Supreme Court, for instance, this month is expected to accept an FCC appeal of a lower court decision invalidating the agency’s telephone-pricing standards. If the FCC rules are reinstated, that could generate greater interest on the part of long-distance carriers such as AT&T; Corp. and MCI Communications Inc. to enter the local phone business.

In addition, new technologies such as wireless cable and local multi-point distribution service--a broad-band video and data technology that relays signals much like today’s cellular phone network--are expected to provide new competition to cable-TV operators and telephone carriers. That might hold down rising rates.

Even if rates continue to move higher, the booming economy may blunt consumer disenchantment over rising prices.

A recent J.D. Power & Associates survey of the cable and local and long-distance telephone industries found customer-satisfaction levels were generally high for big operators such as Sprint Corp. and BellSouth Corp., and even a few large cable operators such as Time Warner Inc. But many cable operators, including Tele-Communications Inc., the nation’s largest, were ranked below average in customer satisfaction.

In a December speech to the American Enterprise Institute, a conservative Washington think tank, AT&T; President John Zeglis asserted that Congress struck a good balance with the Telecommunications Act and that most customers and industry officials are satisfied with the outcome.

“The act is not broken and doesn’t need fixing, but it is under siege,” Zeglis said. The telecom law, he added, “gets the incentives right [to promote competition] for at least 80% of the industry.”

But some of Zeglis’ colleagues in the long-distance industry are not so sanguine about public opinion.

The failure of legislators to do away with the local telephone monopoly “will increasingly become a pocketbook issue with voters,” said Jonathan Sallett, chief policy counsel for MCI. “I think 1998 is going to be a year where this issue is examined and policymakers” do something to level the playing field.