Congress Eyes Telecom Reform
The Brave New World envisioned by Congress three years ago of a deregulated, competitively charged telecommunications sector has yet to materialize - and momentum is building for renewed government action.
Lawmakers have grown increasingly frustrated that there's scant evidence the Telecommunications Act of 1996 has achieved any of its goals - to spur widescale competition, hasten innovation and slash prices for consumers.
Still, while there's broad sentiment among both parties in Congress to do something, there is little agreement on what, exactly, to do. Various proposals are floating around, but none is close to garnering majority support. Moreover, the battle over the 1996 act was exhausting, an ordeal lawmakers would like to avert.
While lawmakers sort out their next step, which could take much of 1999, one idea seems to be gaining ground: putting temporary clamps on current and future mega-mergers in the telecom industry.
"We need more players in the market before we allow consolidation to unfold," said Sen. Arlen Specter (R-Pa.).
In particular, lawmakers are scrutinizing the proposed mergers of Bell Atlantic (BEL) with GTE Corp. (GTE) and SBC Communications (SBC) with Ameritech (AIT). If those deals go through, the number of Baby Bells would go to four from seven.That's the kind of consolidation that's got consumer-advocacy groups and long-distance providers howling. They charge the enlarged Bells would have little incentive to invade the markets of the few remaining rival Bells and that they could use their size to discriminate against would-be competitors, such as AT&T (T) and Sprint (FON), who want to get into the local-service business.
The regional Bells counter, not without some justice, that they need to bulk up if they're going to compete on a national or international scale with the likes of the much stouter AT&T. But they certainly haven't been eager to let competitors of any size into their markets, which are more lucrative than long distance.
The status of the Bells is crucial. Unlike the long-distance sector, te less technologically advanced local-phone market is mostly devoid of competition. The Bells control the so-called "last mile" of phone lines to homes and businesses, much of it composed of outdated copper wire, and charge what rivals call an exorbitant rate for use of those lines. The 1996 law left it up to the states to determine what was a fair price, but the Bells have tied up the matter in the courts.
"We've seen too much litigation and too little competition," said Sen. Mike DeWine (R-Ohio), chairman of a Senate panel on antitrust matters.
Lawmakers now concede they never should have let Bell Atlantic acquire Nynex, which set in motion the consolidation of the Bells. But if they're going down that path, they say they must elicit binding guarantees from the Bells before they bless their pending unions.
"Promises aren't persuasive anymore," said Sen. Herb Kohl (D-Wis.). "And it's our job to hold industry's feet to the fire until we see some evidence of actual competition."
Some telecom-industry officials, including rivals of the Bells, say Congress expects too much too soon. They point out that it took more than a decade for full-blow competition to arrive in the long-distance sector. The local-phone market is far more extensive and complicated, and it will require even more time more competition to blossom fully.
Instead of overhauling the 1996 law, argues one upstart local-service provider, government ought to intensify oversight of the provisions in the deregulation act, which he says has been lax.
Clark McLeod, who runs McLeodUSA Inc. (MCLD) in Cedar Rapids Iowa, says understaffed antitrust regulators have been tied up with other sectors, such as computers and banking. And when they have spent time on telecom, regulators have failed to apply the full force of the 1996 law to recalcitrant service providers.
"This stick has been nonexistent," said McLeod, who's Midwestern local phone service has faced resistance from the Bells. "The act is working. We must give it time, and we must step up enforcement."
Still, lawmakers are less patient, and their constituents certainly aren't willing to wait forever for the long-promised cost savings and other benefits of telecom deregulation.
"Congress may need to seriously consider new legislation if competition doesn't come faster," said DeWine, who has been pushing regulators to crack down harder. "I'm not willing to wait 10 years."
Written By Jeffry Bartash