telecom regulation

My friend Sonia, who works for a bunch of a libertarian think tank wrote an opinion piece for TechNewsWorld arguing for deregulation in telecom:

Companies like SBC and Verizon were forced to share their lines with so-called competitors at below-cost, government-set rates. This type of policy is a disaster, not only because central planning was shown to be faulty many years ago, but also because when people are told they have to share their property with others, they tend to not want to invest in the “commons.” And that’s precisely what happened.

In California, for example, SBC slashed spending from $8 billion in 2002 to $5 billion in 2003. Jobs followed this trajectory. While general employment in California has been slowly growing over the last couple of years, there have been huge job losses in the telecom sector.

But IT World ran a story from IDG News Service headlined Customers suffer where regulators are weak. The European Competitive Telecommunications Association study found the opposite of what Ms. Arrison suggested: a good regulator leads to more investment:

For example, in the U.K., where the study found that the regulator is independent and has created effective regulations, telecommunications companies invest US$184 per capita. By contrast, in Germany, which tied with Greece as having the least effective regulatory environment, operators spend just $68 per capita. The incumbent has maintained a strong grip on the German market.

Some notes about Ms. Arrison’s rhetoric:

  • “so-called” implies the companies the ILECs shared their lines were somehow not competing with them (Perhaps they were colluding? I don’t see how that helps her argument)
  • “shared” implies the lines were given away; they weren’t they were leased
  • “central planning was show to be faulty” is something of a disingenuous strawman argument. perhaps she is alluding to soviet russia; it’s not clear here, and it’s a cheap shot. either way, it is incorrect to make a generalization in one field out of a failure case in another.

Blaming regulation for declining SBC spending ignores a lot of other factors. (it’s like the record industry blaming downloaders for declining sales while ignoring rising prices, limited selection and more competion for the entertainment dollar.)

Telcos spent a lot of money duriing the dot-com boom, and it was unsustainable. next, capacity is probably more than sufficient—with so much dark fibre, why build more?

Sonia continues:

The current thinking is that in order for communications companies to compete with one another, they will have to offer different content from their competitors. That means partnerships with Hollywood types and independent artists.

I don’t want my telco in the content business. (aside: didn’t exite@home try that and fail? yes, this fails my earlier generalization test, but it’s much more on point.) I want my telco to distinguish itself by low price, high uptime, good call quality, high bandwidth, low latency and other quality-of-service measurements.

Going back to the study. The article begins:

Customers pay more and are offered fewer telecommunications services in European countries where regulators have done a poor job of weakening former monopolies

This problem isn’t limited to Europe. Writing in Salon, Derek Turner laments the high cost of broadband in the US :

Most Japanese consumers can get an Internet connection that’s 16 times faster than the typical American DSL line for a mere $22 per month.

In France, DSL service that is 10 times faster than the typical United States connection; 100 TV channels and unlimited telephone service cost only $38 per month. In South Korea, super-fast connections are common for less than $30 per month. Places as diverse as Finland, Canada and Hong Kong all have much faster Internet connections at a lower cost than what is available here.

So why did this happen? Derek’s theory:

The answer is simple. These nations all have something the U.S. lacks: a national broadband policy, one that actively encourages competition among providers, leading to lower consumer prices and better service.

In the US, as it stands:

major cable companies and DSL providers control almost 98 percent of the residential and small-business broadband market


The corporate giants are also vigorously fighting to stop cities and towns from building “Community Internet” systems — affordable, high-speed broadband services funded in part by community groups and municipalities — even in places where the cable and DSL companies themselves don’t offer service

Next, note that FCC has a poor definition of broadband:

But the FCC defines a “high-speed” connection as one capable of transmitting data at a rate of 200 kbps (kilobits, or a thousand bits, per second) in one direction — about four times the speed of dial-up. At this slow speed, it is barely possible to receive low-quality streaming video, and is completely impractical to originate high-quality video.

This lets them make it seem like more people have broadband than really do. Contrast this with Canada:

Canada has declared the minimum standard for broadband to be 1.5 Mbps in both directions — more than seven times faster than what the FCC considers to be “advanced service.”

Finally, the FCC has a poor definition of coverage:

the FCC considers an entire ZIP code as “covered” if at least one person living in that area has a broadband connection. This allows the FCC to make misleading boasts about how broadband coverage reaches 99 percent of the country.

And as for the “competition” aspect. Contrary to FCC Chairman Kevin Martin’s claim in the Wall Street Journal that there is “fierce competition” among broadband providers:

The FCC’s own data show that nearly 20 percent of all Americans report having no cable or DSL service providers in their neighborhood, and another 28 percent only had access to one provider. In President Bush’s home state of Texas, for example, 93 counties have only one broadband provider and 16 counties offer no service at all.

So, in summary: the US has less regulation for telecom, but yet, service is worse:

  • the cost per megabit of broadband in the US is several times more than in other developed nations
  • the FCC’s definition of broadband is misleading and inaccurate
  • availability is poor — broadband is lacking in many parts of the US
  • most US cities have only one or two choices for broadband (DSL or cable)

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