Friday, 15 November 2002 8:30 am
Interesting reader responses to my Monday, Tuesday and Wednesday columns in which I talked about the current telecommunications industry structure and asked rhetorically "Why not go back to the way things were? Wouldn’t the nation be best served by going back to a regulated monopoly, given what we know now?"

One reader  wrote:

"I read your Monday and Tuesday columns with great interest, probably in no small part because I have a significant equity interest in the telecom industry. It has seemed to me for some time that the Titanic collision course has become inevitable because everyone involved seems locked in a lemming like dash for the cliff. No one appears to have the will or political courage to strike out in a new direction. The FCC, legislators and corporations seem equally impotent, and consumers are myopically focused on their monthly bills as they were in the California utility debacle. Your points on the role of innovation driven by Bell Labs and PARC were excellent, and ignoring the need for pure research certainly will have a corrosive long-term effect on the competitiveness of the US. Preoccupation with the short term bottom line, and the rejection of immediate dollar producing research efforts are trends that do not look like they are about to change in the near future unless there are some governmental efforts to reverse this with some sort of tax incentives to corporations. I wonder as the RBOCS etc. plunge towards insolvency who will be maintaining all the established wirelines. All of our networks need ongoing repair, as evidenced by the daily sight of rolling Verizon, SBC and BLS vehicles. If all this falls to insolvency is the government going to have to step in and become the provider of last resort? The California model certainly provided a vivid foreshadowing of this potential fiasco. Will we wait until our dial tones fail to appear? Thanks for your cogent insights."

Although my question was a rhetorical one, meant to stimulate discussion and debate, the responses made me wonder how difficult it would be politically to actually move back to a regulated monopoly structure. So I asked my good friend, a Washington insider. He said:

"Like it or not, there is little political pressure on the FCC to reverse the deregulation. In fact, if anything the recent election results will result in increased pressure on Chairman Powell to accelerate the deregulation. Senator Hollings, current Chair of the Senate Commerce Committee, has been the only obstacle standing in the way of the FCC moving more quickly to deregulate. The new Chairman, John McCain, will collaborate with House Commerce Chair Tauzin and all those who have been clamoring for greater disaggregation of the telecom marketplace through deregulation ... will get their way."

Further, he opined that "being a capitalist at heart":

"Rather than point to the inherent unworkability of a market-based telecom structure as the culprit, I would propose that we are seeing nothing more than a "pendulum" problem, i.e., the money is smart enough to ultimately deal with the over capacity enthusiasm and smart enough to understand that vertical integration may not serve well. The pendulum will swing back. Some companies will go bankrupt and reorganize, true. "

The question that comes to my mind is: what happens when in a free-market, capitalist economy, capital flees an industry who's services the public demands?  That is what we may be facing soon in the telecommunications arena.  Some companies (e.g. Lucent) have already lost access to capital.  The situation in airlines and electrical power, two other de-regulated industries, could be similar.  

The answer is that the government will feel obligated to step in and assure the delivery of the services demanded by its constituents.  It can do that by nationalizing the industry and operating it as a government function, or by regulating it sufficiently to attract new investment capital from private sources.  The US government has usually chosen the latter approach, European governments the former.