Friday, 21 February 2003 8:30 am
The FCC decision yesterday is being declared in the press as a win by the competitive local exchange and long distance carriers and a loss for the "baby bells" (RBOCS). My view is that this judgment is premature. The US telecommunications industry is one of the most complex industries on earth, and it will take time and experience to determine the real impact of the new regulations on the various participants.

There are a few things that are clear, however. The first is that FCC Chairman Powell's plan failed. The chairman not only cast his vote against the final regulations that were issued yesterday, but wrote a very strongly dissenting opinion. The chairman was widely reported to favor a different plan that would have de-regulated the conditions under which RBOCS must currently rent their local-loop facilities to competitors. Although Powell argued that his plan was pro-competition, almost everyone, both for and against his plan, knew that it would turn the RBOCS back into powerful local monopolies and drive out their competitors. If you combine this with Powell's publicly held beliefs that large mergers of carriers would also be good for the industry, one can easily envision a not-so-distant future where the RBOCS would swallow up the remaining long distance carriers and even merge with each other, thereby recreating the old Bell System monopoly or monopolies. Many believe that would be a good thing, considering the current chaos caused in part by the deregulation prescribed in the Telecommunications Act of 1996. I have certainly argued along those lines myself in previous columns.

The problem is that the FCC is not allowed to make any decision that would lead to re-monopolizing the industry. The Telecommunications Act of 1996 gives the FCC only the charter to enact regulations that encourage competition. Three of the other FCC commissioners, mindful of their charter, saw that Powell's plan was anti-competitive even if it was for the good of the industry, and therefore decided that they had to oppose it. This did not surprise me, as this is congruent with the conclusion I wrote in my column on November 15, 2002:

"The take-away here is that, under the current government philosophy and political makeup, the likelihood of interfering in the telecommunications market in order to preempt the collapse of any or even all of its players is unlikely. However, when things have deteriorated sufficiently that the delivery of service to constituents is in serious danger, then the government will intervene, probably taking the structure back to a regulated monopoly model. So it is possible to go back to that model, but it will take a catastrophe. Let's hope that the rest of the economy survives, if and when that should happen!"

The other thing that yesterday's decision made clear is that the FCC is now in serious disarray. Four of the five commissioners wrote dissenting opinions on at least part of the new regulations, including the chairman (the first time an FCC chairman has dissented with an FCC decision in 12 years)!  Even if the compromise that was struck to obtain the 3-2 majority vote turns out to be a good one, a leaderless and divided FCC cannot be a good thing for anyone.  More storminess ahead, I'm afraid.