This story appeared on Network World at

http://www.networkworld.com/columnists/2006/090406bradner.html

U.S. telecom "reform" as an object lesson?

'Net Insider

By Scott Bradner, Network World, 09/04/06

The framers of the Telecommunications Act of 1996 aimed to ensure real telecommunications services competition for residential and enterprise customers. It's safe to say few observers outside of the shrinking number of remaining major Incumbent Local Exchange Carriers think the Act has achieved that goal.

The nonsuccess of the Act is explored in detail in a report recently submitted to the Canadian government in response to its request for comments on proposed telecommunications regulations. "Avoiding the missteps made south of the border" was prepared by researchers Lee Selwyn and Helen Golding from the Boston-based company Economics and Technology. ETI is hardly an unbiased observer: Its Web page says, "For more than thirty years, [Economics and Technology] has been at the center of national and international efforts to open formerly monopolized public-utility markets and to bring the benefits of competition - accelerated innovation and lower prices - to consumers, large and small." That does not mean the report is short of facts to support the contention implied in its title that the implementation of the Telecommunications Act has eliminated rather than enabled competition.

The key issue the report addresses is third-party access to the ILECs' physical and electronic infrastructure - called "unbundled network elements" by the Act. This access, and third parties reselling ILEC services and building their own infrastructure, were the three ways the Act assumed telecommunications competition would be enabled.

As the report details, the rules that mandated access to the ILECs' infrastructure have been eviscerated by the FCC and the courts, to such a degree that the option has been eliminated almost totally. The ETI report also details why the other two competition enablers have failed to foster competition in the real world. And as I've pointed out before, there is no real competition between ILECs for anything other than wireless service. The statistics in the ETI report easily back up the contention that for most residential and enterprise customers there is no realistic competition for the ILECs in the markets for broadband service and traditional telephones. Because of this, there is no useful pushback on prices.

My main reaction in reading the ETI report was that the ILECs are nowhere near as dumb as most investors during the Internet bubble thought they were. More than $60 billion was invested in ILEC competitors, almost all of which have been driven out of business by the ILECs' extremely successful lobbying and legal efforts. It's hard not to admire the competence of at least that part of the ILEC business.

The ETI report does not mention it, but the lack of real competition for the ILECs makes the network neutrality discussion all that more important. With no meaningful competition, we have to rely on the FCC to ensure fairness in the Internet business, and this is the kind of thing on which the FCC consistently has failed to act. (The ETI report has a number of other examples).

It's apparently too late here in the United States to do the right thing, but Canada still has a chance. Maybe its government will listen, but remember: The Canadian telephone carriers are not as dumb as they sometimes look.

Disclaimer: Harvard generally tries to judge by actions rather than looks, but that does not mean everyone at Harvard is ugly. In any case, the above is my advice, not the university's, to the Canadians.