After an exceptionally divisive election season, and amid neverending battles over taxes and spending, many observers question America’s ability to remain globally competitive, upwardly mobile and innovative. Perhaps our best days are behind us, they lament. Perhaps our children face a bleaker future than their parents.
We disagree with the skeptics. We approach the future with excitement for the possibilities and optimism that our policymakers can unleash Americans’ unique entrepreneurial spirit and creative talents. Our nation’s past is the story of continual reinvention and renewal — from steamships to automobiles, assembly lines to personal computers — a rising, innovation-driven tide has consistently lifted all boats. No sector of our economy provides a stronger example than telecommunications.
Thirty years ago, there was one telephone company. No cellphones, no smartphones, no apps. Telecom was important, but hardly the essential engine driving productivity, employment or new business formation. Through an elaborate structure of regulations and cross-subsidies, policymakers ensured this slow-moving monopoly accomplished desired social outcomes, such as universal service and affordable pricing for consumers. That world of plain old telephone service is long gone.
In its place, today’s telecom consumers enjoy incredible innovation and furious cross-platform competition. For example, nine out of 10 wireless consumers have the choice of five or more providers, and at least three times as many digital devices. Beyond mobile carriers, robust voice, video and data packages are offered by cable companies, satellite companies and today’s telephone companies. The era of the monopoly is over … yet monopoly-era regulations persist.
One of the most egregious monopoly-era regulations still on the books is the requirement that legacy carriers continue maintaining legacy copper networks and leasing them to their competitors at below-market rates. While these rules made sense at the dawn of the Internet era when little, if any, competition existed and telephone networks had been built via government-guaranteed rate-of-return exclusivity, they have long been overtaken by events. Today these regulations from the past century result in a misallocation of resources. And they perpetuate free-rider business models that diminish investment in networks and hinder innovation in telecom services.
To their credit, policymakers over the past decade understood that “new wires” demanded “new rules” and, as a result, today the more advanced broadband infrastructure faces fewer regulatory barriers and obligations. Yet while this new broadband economy evolved, advanced, competed and flourished, a few businesses built on arbitrage of the old regulations dug in. And today we find them aggressively opposing efforts to end their government-granted regulatory lifeline. Specifically, we see a small number of business competitive local exchange carriers mobilizing in Washington to protect, preserve and defend their anachronistic — yet still profitable — business models premised on their subsidized government-mandated access to other carriers’ facilities. These subsidized carriers overwhelmingly serve high-profit business customers, rather than individual or lower-income consumers.
Nothing prevents true competitors in the marketplace from investing in new services and innovative service offerings. Google is proving that in Kansas City, just as C Spire is in Jackson, Miss. Yet CLECs have recently rallied in protest to the notion that government might not forever mandate that their competitors maintain a network infrastructure for them. Rather than picking off the most profitable customers via subsidized platforms, these CLECs would need to stand on their own feet, build their own facilities and compete on a level playing field where innovation differentiates and the best network wins — prospects they find unacceptable.
CLECs must also face the reality that high-speed fiber/ethernet services are rapidly leaving the slower, outdated copper networks behind. Businesses want high-speed Internet service in today’s marketplace, which means CLECs most likely see the writing on the wall: Their business model and the technology they use has to change if they are to survive.
In the end, we suspect policymakers will recognize the paramount importance of encouraging investment in our dynamic telecom markets by retiring the monopoly-era regulations that no longer make sense. With or without howls of protest from companies still profiting from last-century networks and government-granted margins, our future clearly lies in transitioning to Internet Protocol networks. The IP transition is already proving an incredible boon for consumers and the American economy, and federal regulators can accelerate this transition by clearing away regulations that no longer make good sense and do not apply in today’s broadband ecosystem.
Our future is bright, and cutting-edge broadband technologies light the way.
Originally published at Pollitico