NAVIGATION

Telecom Environment
Will decisions by federal and state regulators this year go far enough to protect the public interest?

1One year after President Clinton signed the law that was supposed to bring competition to the telecommunications industry, consumers have yet to see many tangible benefits.

2Federal regulators have adopted rules designed to give all Americans access to affordable basic telephone service, and to make advanced telecommunications services available to schools and libraries at discount rates backed by a fund worth $2.25 billion a year.

3State regulators will have much to say about universal service policies and the terms of competition in local telephone markets.

4With Congress and the FCC divided, a presidential advisory committee will consider what public service requirements to impose on broadcasters.

5Chart: Discounts to connect schools and libraries rise with need

A year later, most of the hard work remains to be done.

The first anniversary of the Telecommunications Act of 1996 passed quietly in February, with different sectors of the trillion-dollar information industry still circling each other warily and consumers still waiting for the low prices and expanded services the deregulation law was supposed to bring.

But the pace of change is accelerating. This year the Federal Communications Commission (FCC) and state regulatory panels are devising rules that will govern competition between the cable-TV industry and local and long-distance telephone carriers. The regulators are also spelling out what telephone companies must do to ensure affordable access to basic telephone service. Advocates will have to stay alert and nimble if they are to influence the decisions that are likely to come at both the federal and state levels.

Context
Last year Congress agreed to deregulate telecommunications companies, but this year it will be up to federal and state officials to ensure that competition really occurs—and to spell out the companies' public interest obligations. In particular, the Federal Communications Commission, state regulatory commissions, and a new presidential advisory panel will be working on rules aimed at:

    What's at Stake
  • Jump-starting competition by establishing ground rules for how new communications providers can connect to traditional networks.
  • Spelling out what basic communications services must be made available to all Americans, regardless of their income or where they live.
  • Ordering telecommunications companies to provide basic and advanced services to schools and libraries at discount rates.
  • Establishing the public interest obligations of broadcasters—to provide educational programming for children or free air time for political candidates, for instance—in the soon-to-arrive era of digital television.

1Competition or détente?

A year ago proponents of the 1996 Telecommunications Act asserted that the new law would unleash all-out competition between telephone and cable companies. But consumers are still waiting to see the benefits that this free-for-all was supposed to bring.

In fact, a number of telephone companies, bracing for a possible price war in the long-distance business, have asked state regulators for permission to increase rates for local residential telephone service by as much as $10 a month. Merrill Lynch, meanwhile, believes that telephone companies will gain no more than a negligible share of the market for video services. And most cable operators seem too busy protecting their core business in the face of competition from direct broadcast satellite companies to offer telephone services any time soon. At the same time, although some new cable-TV programs have appeared, quality programming has disappeared as well. Over the past four years, for instance, cable companies serving more than five million households have dropped C-SPAN, one of the nation's premier sources of public affairs coverage.

Instead of competition, "we may have the forming of a détente" among potential telecommunications rivals, says Wall Street analyst Tom Wohlzien. In 1996, for instance, four Baby Bell telephone companies decided to join forces in an apparent attempt to protect their home turf rather than challenge each other for customers. Consumer groups viewed the mergers, between Pacific Telesis Group and SBC Communications in the west and Nynex and Bell Atlantic in the east, with apprehension. "Consumers need to be concerned," said Armando Valdez, a California-based communications consultant who has been working with the Benton Foundation to bring more minority voices to the telecommunications debate. "Vigorous competition would bring down rates, but the size of the merger is likely to dissuade some competitors from entering California."

Still, the merger movement continues, and companies may be growing bolder in the face of regulatory acceptance. In late May executives confirmed that AT&T and SBC Communications are engaged in talks that could lead to a merger twice the size of the largest previous merger in corporate history. The combined company would boast 90 million long-distance customers and 30 million local subscribers, and it would dominate the California and Texas markets. The Wall Street Journal speculated that it could prompt the newly combined British Telecom-MCI company to start looking for its own "Baby Bell" local telephone company to buy.

There were indications that antitrust regulators wouldn't look as kindly on an AT&T-SBC merger as they have on earlier telecommunications combinations, however. In any event, one thing is clear: the effort to establish competition in the telecommunications industry will be long and arduous. "This is a very big business," says Manhattan institute fellow Peter Huber. "It took 10 years for the microcomputer industry to challenge IBM."

2Universal service

Public interest advocates achieved a substantial victory on May 7, 1997, when the FCC adopted policies designed to make telecommunications services universally available. But advocates will have to maintain pressure in this arena in the months ahead.

After receiving comments from more than 250 groups, the FCC agreed to design universal service rules that seek not just to ensure people access to telephones but also to guarantee them a certain number of calls each month at no extra charge. It also recommended prohibiting telephone companies from cutting off basic telephone service to customers who fail to pay their long-distance toll charges.

Public interest advocates will be working to implement another FCC rule, also adopted May 7, that will enable schools and libraries to obtain basic and advanced telecommunications networks—including Internet access—at discounts 20%–90% below the rates providers charge their best customers. The discounts, which will be financed from a $2.25 billion fund, will apply to internal wiring and equipment such as local area networks (LANs) and routers as well as connections and ongoing Internet access charges.

3Role of the states

State regulatory commissions will play an increasingly important role in fleshing out telecommunications policies. The federal law says, for instance, that basic telephone service should be made available at "affordable" rates, but state commissions will have the job of defining what "affordable" means. States also must determine what steps carriers must take to inform people about the discounts for which they are eligible.

In addition, public interest groups want state commissions to clarify rules allowing schools, libraries, and nonprofit organizations to form consortiums to buy advanced telecommunications services in bulk. That could reduce costs for these institutions even further, improve the quality of the services they can buy, and extend affordable telecommunications services to more community-based organizations.

The role of state regulators does not stop there. By supervising negotiations between rival telecommunications companies over rules for interconnecting their systems, state officials will help determine whether competition really takes hold in local telephone markets. And they will be the first line of defense for consumers who suffer any adverse fallout from deregulation.

"Because state commissions are close to citizens, we are the ones who will have the best sense of how the new regime is working on the ground," notes Bob Rowe, a member of the Montana Public Service Commission and vice chairman of the National Association of Regulatory Utility Commissioners' Communications Committee. "It's essential for citizens to participate at their state commissions and to think broadly about telecommunications policy."

4Whose spectrum?

The FCC, meanwhile, has moved to start granting broadcasters licenses for the new spectrum they say they will need to make the transition to digital television. Congress is sharply divided over what public service obligations to impose on broadcasters in return for the right to use the additional spectrum. Sen. John McCain (R., Ariz.), the chairman of the Senate Commerce Committee, believes the government should sell the spectrum in public auctions, but Rep. W. J. (Billy) Tauzin (R., La.), the chairman of the House Telecommunications Subcommittee, opposes spectrum auctions. The FCC is divided on the issue, too. As a result, it will fall to a presidential advisory panel.

The panel, which is expected to present its conclusions by June 1, 1998, could recommend requiring broadcasters to carry a certain amount of public interest programming on their new channels. That could extend the FCC's requirement—imposed last year under pressure from a coalition led by the Center for Media Education—that broadcasters air three hours of programming each week designed to educate or inform children.

But the transition to digital television raises even broader questions. Technological advances could enable broadcasters to serve as Internet providers or to offer telephone, video, and data services, in addition to providing traditional programming. Policymakers have scarcely begun to consider how rules developed to ensure that broadcasters perform some public services during the era of analog television should be adapted to this more complex digital age.

Stay tuned.

Valdez photo"For community leaders, the merger was an opportunity to interject their concerns in the debates and ensure that the communities they work with were not further marginalized, pushed back, ignored, bypassed."   —Armando Valdez

Leadership roundtableStates are the next battleground for telecom policy: small business owners and nonprofit leaders meet to develop policy recommendations for Colorado governor Roy Romer about extending affordable service throughout the state. The leadership roundtable was organized by the Center for Policy Alternatives, the State of Colorado, and the Benton Foundation.


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