Deregulation Pays Off

More than two decades after the end of AT&T’s regulated monopoly, and nearly ten years since the landmark Telecommunications Act of 1996, government remains a powerful force in the telecom industry. Telecom services are taxed more in the U.S. than anything other than gasoline, cigarettes and liquor, says economist Jeffrey Eisenach, and additional taxes on Internet services are under consideration. The universal service charge, which helps support phone companies in rural areas, won’t disappear even as the market rationalizes.

“We still have about 1,400 telcos in the U.S., and we need maybe eight,” says Eisenach. “It is possible that we could tax things enough to make the value proposition of telecom convergence less compelling.”

Sitting in his Washington office beneath framed mementos of his time spent in the Reagan administration, and as an advisor to the Bush-Cheney transition team, Eisenach is no fan of big government.

The government still distorts the marketplace by regulating different network platforms (e.g., cable, fiber, wireless) differently, he says. But even Eisenach allows that the “toxic mix” of regulatory mire and dot-com era “misinvestment” that defined the last decade has given way after years of litigation and politicking to a more congenial competitive environment.

“There is hope,” he says, noting that the Federal Communications Commission has so far refrained from applying old-style regulation to the Internet, and recent rulings have allowed services like Voice over IP to grow quickly.

A more upbeat take comes from Scott Cleland, head of the Precursor Group analysis firm, who says the FCC’s VoIP decision last year showed that “the government is not going to screw this up. Technology and the marketplace are now driving the bus.”

Even in a deregulated climate, however, some regulation may be necessary, such as FCC requirements that Internet phone services make provisions for 911 emergency calls.

And corporate users may want standards imposed for things such as the security of handheld devices if the market doesn’t deliver them on its own, says IBM Global Services Vice President Dean Douglas. “I’m not a big fan of regulation, but it’s going to take a concerted effort to get beyond the rudimentary security of today, and if companies can’t make it happen it will have to be regulatory.”

So for telecom customers, the regulatory picture looks pretty bright. And if there are problems, well, in telecom, there’s always the option of more regulation.

Lead Story:
Telecom Merged and Converged: The victory of the supercarriers and the transformation of American networking

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