America's Telecom Policy Is Stuck in the 1990s

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Bruce Mehlman

NEW YORK ( TheStreet) -- Coming out of the Mobile World Congress in Spain, headlines such as "Europe Is Strangling the Telecom Industry" paraded across news outlets.

According to the reports, European regulators are saddling telecommunications firms with additional heavy-handed price mandates that have slowed investment in next generation, high-speed broadband networks. The current regulatory landscape in Europe has forced many companies to cling to dead-end business models built on outdated, slower technology. As a result, Europe has an overcrowded market with too many telcos unwilling or unable to invest in state-of-the-art, IP-enabled networks. They are in essence starving the broadband future.

Sound familiar? It should. Our nation is facing a similar challenge today with the transition to all-Internet Protocol (IP) networks. Competitive Local Exchange Carriers (CLECs) and their allies demand that America's outdated regulatory framework governing Plain Old Telephone Service (POTS) must remain in place in perpetuity. Many even push to extend POTS regulations to the all fiber-based networks that have thrived and proliferated precisely because they are free from such mandates. Talk about stuck in the 1990s.

Currently, CLECs are afforded access to incumbent carriers' TDM-based networks at reduced government-regulated rates, pursuant to the 1996 Telecommunications Act. Such favorable treatment was intended to give new entrants a running start, a base upon which they might invest in their own networks and build out competing infrastructure. Indeed, policy makers' explicit goal at the time was to create more robust competition in the telecommunications marketplace for both residential and business voice services. It was thought that by allowing the competitors to use the networks of incumbents and to pay a deeply discounted rate for network access, so-called TELRIC pricing, CLECs would rapidly acquire customers, enjoy revenues and soon be able to build their own infrastructures.

It hasn't quite worked out as Congress intended. Unfortunately, too few CLECs actually deployed competitive networks of their own, preferring instead to leverage their rate-regulated access to Incumbent Local Exchange Carrier (ILEC) infrastructure while targeting mostly business customers with lower-cost alternatives enabled by lower overhead. Residential consumers rarely receive any benefit from the competitive services most CLECs offer. Easy profits if you can get them, but hardly rules to encourage deployment of upgraded, competitive broadband networks.

Policy makers should address the market that is, not the myth that was. In truth, ILECs are no longer dominant by any rational standard, and consumers now have an ever-increasing array of alternatives to ILEC service providers. ILECs today serve less than a third of consumers with switched access voice service in their service areas (e.g., IIA member AT&T serves 25% in its 22-state-wireline footprint).

According to the National Broadband Map, 89% of Americans have a choice of five or more broadband providers, including wireless and satellite. A total of 85% have a choice of two or more wireline broadband providers. Some 86.7% of Americans have a choice of four or more wireless broadband providers, while more than half have access to five or more wireless broadband providers.

Many of these CLECs understandably fear the impact of the IP transition on their own legacy businesses, especially those companies predicated on regulatory arbitrage. Other supporters of legacy rules worry whether upgraded networks will confuse consumers or change services that some prefer just the way they are and have always been. Yet fear of the future is not a sound basis for public policy, and it is obviously not the role of the Federal Communications Commission (FCC) to protect the business model of specific companies, especially those that have been on notice for more than 17 years that they needed to invest in their own facilities and connections.

As with government, the ability of businesses to invest is not unlimited. When demanding investment in redundant copper networks to preserve the status quo for an ever-shrinking minority of consumers, policy makers directly rob investment from faster broadband networks that serve the ever-growing majority of consumers. That's the wrong choice.

Today's broadband marketplace is hyper-competitive, rapidly innovating and most enabled by less regulation and a lighter regulatory approach to advance the public interest and best serve consumers. It's clear that outmoded telecommunications regulations designed in the pre-broadband, pre-smart phone era no longer advance America's future.

Bruce Mehlman is co-chairman of the Internet Innovation Alliance and served as U.S. Assistant Secretary of Commerce for Technology Policy from 2001-2003.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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