FCC, Don’t Hang Up on the Public

For the Federal Communications Commission, developing competition in local telephone markets is the regulatory Holy Grail. The best way to stimulate competition, FCC Chairman William Kennard keeps saying, is to let new technology loose. The agency has allowed the regional Bells to grow bigger and the long-distance phone companies more audacious in the hope this will give them the size and room to start competing for local phone customers.

The agency has refrained from regulation for fear of stifling new technology. But exhortation alone has not worked. The FCC needs to make increased competition the key condition in approving mergers and granting licenses. It must make sure the new technology it is promoting does not serve as a barrier to newcomers and that phone companies do not drag their feet in opening their systems to competitors.

The recent flap over long-distance phone rates shows the pitfalls of FCC policy. With much fanfare, Kennard announced earlier this month a deal with long-distance companies that would slash the fees they pay to the local companies for connecting calls. This, he declared, would reduce phone bills for everybody.

It would indeed if the long-distance carriers passed the savings on to consumers. AT&T;, a key party to the deal, had no such thing in mind. Even as it made promises about consumer savings, AT&T; notified the FCC it was raising per-minute rates by as much as 150% for long-distance calls made during the week and on Saturdays. It backed off in the face of consumer outcry but then raised peak weekday prices anyway. Clearly, Kennard’s trust in AT&T; was misplaced.

Meanwhile, consumer complaints to the FCC against phone companies are going through the roof, up 82% in the first half of last year, compared with the same period a year earlier. The phone companies are so brazen that, rather than dealing with irate customers, they switch the calls straight to the FCC’s hotlines. Apparently they feel they have nothing to fear from the watchdog agency. Incredibly, Kennard sees the rise in complaints about deceptive and misleading marketing as a good sign of aggressive competition among the phone companies.

Cable companies, logical competitors in offering phone service, show no interest in the business.

The FCC’s policy isn’t working. True, the unwieldy Telecommunications Act of 1996, under which the FCC has to operate, is full of internal contradictions and is not easy to administer. But it should not reduce Kennard’s agency to a cheerleader for the industry. The FCC has teeth and ought to use them on behalf of consumers.