Telecom Industry Rules Must Catch Up with the Marketplace

As the industry prepares to gather

this month in Las Vegas for TELECOM ’04, the annual conference for the United States Telecommunications Association, this is an appropriate time to reflect on the tremendous changes we have seen in the telecom industry and the steps that must still be taken to make sure the nation remains on the leading edge for technology.

In today’s information economy, telecommunications plays a central role in creating and sustaining the jobs and economic opportunities that are important to communities and to our nation’s global competitiveness.

In today’s telecom sector, competition is not merely a reality; it is the defining reality of a rapidly evolving, innovative marketplace.

It does not take a policy expert to notice technology has fundamentally transformed the way we communicate:

The result for consumers: unprecedented choices and the ultimate market power - the ability to take their business elsewhere. This, of course, changes everything in the world of public policy. Here in America, heavy economic regulation is reserved for times when consumers do not have choices. Where Americans have choices, we believe consumer decisions in a free marketplace will do a better, more efficient job of driving investment and growth than regulatory red tape.

Of course, it’s easy to say all this with the benefit of hindsight. It’s understandable that members of Congress back in 1996 could not predict how rapidly the Internet, wireless phones, BlackBerries and PDAs would work their way into our lives, changing fundamentally how we communicate and dramatically expanding the choices available to us. But given this new environment, it is time to revisit the 1996 Act and write new rules for what is undoubtedly a new world in telecommunications.

Today, there is emerging consensus in Washington that it is time telecom laws catch up with the marketplace.

Telecom policy leaders on Capitol Hill have held a series of hearings in anticipation of reopening the 1996 Telecom Act in the next Congress.

They are recognizing that the world has changed. They see that it is time for a new approach, one that is not only relevant in today’s marketplace, but constructive, encouraging the investment and the real competition that could be the foundation of a broad recovery of our information economy.

We are starting to hear new words and phrases in these debates: ‘market-based competition,’ ‘head-tohead rivalries,’ ‘allowing consumers, not the government, to pick winners and losers,’ ‘encouraging investment from all the platforms,’ ‘preserving vital social objectives, from universal service to 911 to law enforcement tools.’

The history of our nation demonstrates that consumers see the lowest prices, the greatest innovation and the greatest social progress with free markets.

Unleashing the free market in telecommunications, if history is our guide, will be an enormous benefit to our information economy and to consumers.

In fact, recent economic analyses indicate that ending government micromanagement of the telecom marketplace could raise GDP growth by between $14 billion and $34 billion a year. Similarly, policies that permit local phone companies to invest and compete in broadband as freely as other platforms could deliver a $35 billion increase in annual investment in broadband, leading ultimately to the creation of as many as 1.2 million new U.S. jobs.

So it’s no surprise, with the evidence in our daily lives that competition is here to stay and given the broad interest in renewing our information economy, that we see a strong consensus building for a major modernization.

Another critical area where we are seeing a growing call for reform is to secure the longterm health of universal service. Policymakers have made it a top priority to ensure essential telecommunications services remain affordable, accessible and reliable to all Americans, regardless of geography or income. Telecommunications exists to defy geography. So long as communities need help with the costs of infrastructure to overcome those boundaries, the Universal Service Fund will be essential.

Unfortunately, the program is in significant jeopardy today - double jeopardy, in fact, as it is squeezed on both the supply side and demand side. The costs of the program are growing exponentially as more companies gain access to the fund, even though they often do not have extensive infrastructure costs to support. At the same time, fewer calls are taking place over wireless and landline networks, which are the primary funding base for universal service.

The result is a downward spiral: The more companies gain access to these resources, the higher the universal service fee must be to cover the costs, the more traffic migrates to newer platforms, like the Internet and cable, which are not required to pitch in.

The solution is obvious: Pass the hat to everyone. Like the rest of the 1996 Telecom Act, these rules were written before the newer platforms were even imagined. So rewrite the rules for today’s world and ask everyone to contribute. The burden is shared by all, spread across a far broader group of companies, and the future of universal service is more secure.

Ultimately, America has a choice: put its faith in consumers and in the free markets that govern the rest of our economy or in continued government-managed competition.

From Congress, to FCC Chairman Michael Powell, to the U.S. Supreme Court, to the White House, we see this country today standing by the free-market principles that made this the strongest and most innovative economy in the world.

There is a promising future for telecom. Industry leaders are finally able to catch a glimpse of that precious, rare commodity that has been so elusive these past eight years - regulatory certainty. Even better, we are seeing the rising prospect of deregulatory certainty - the ability of our information economy to reap the full benefits of true free-market competition across the new communications marketplace.

This is an exciting time for local phone companies. We alone, virtually throughout the U.S. economy today, have been denied the right to fully participate in the free marketplace.

We’ve survived the worst of it. We’re excited about the chance to compete head-tohead with the other platforms. And, we’re going to fight hard to see these reforms through. We’re going to fight for our right to equal treatment from our government. We’re going to fight for the free-market principles that are essential to economic growth and investment. We’re going to fight for the future of universal service - asking all participants in today’s marketplace to contribute. We’re going to fight for the right of consumers to have their choices - not those of regulators - guide the future of one of the most promising markets in America today.

Local phone companies understand that there is no going back to the old world. We’re fighting today for our right to compete headto- head in the new one. We are excited about our business plans, about the aggressive efforts underway to deliver a voice-video-data revolution to the country. And, we are very encouraged by the progress we finally see underway in earnest to catch the nation’s telecom laws up with our lives.

Walter B. McCormick Jr. is president and CEO of the United States Telecom Association, a trade association representing 1,200 service providers and suppliers for the telecom industry. USTA’s members provide local telephone service across the country, ranging from the very largest telecom companies, like Verizon, BellSouth and SBC to companies with only a few hundred customers.