Infrastructure Socialism in Telecom
Competition is as American as apple pie. Everyday, companies battle to capture the attention and dollars of consumers. This process often gets muddled, however, when government regulation intrudes.
Such is the case with telecommunications. Right now, a battle is underway in Ohio not for consumer dollars but for political preference. Policymakers must determine whether the local network providers or potential entrants have a better case in a dispute over network access, and whether — when it comes to competition — there can be too much of a good thing.
The biggest hurdle to overcome in this debate is that this is one of the most heavily regulated industries in the country. Determining how any attempt to tweak the system will affect consumers is difficult at best. The resulting confusion, for instance, has both sides arguing that their efforts will ultimately improve customer service.
To show just how committed they are to customers, both local and long distance phone companies have sent armies of lobbyists to the Statehouse. For example, SBC is requesting the ability to double the price of access to their network, which doesn’t sound so consumer-friendly. AT&T, which uses the SBC network, is understandably doing its best to counter this move. [1]
Arguing that either position is taken in the best interest of consumers is a bit pointless, as the issue likely has far more to do with bottom lines than consumer advocacy. Nonetheless, any legislative action that occurs will undoubtedly have implications for consumers.
“This is an issue about jobs and fairness,” says State Representative John J. White, (R-Kettering) for instance. “At this point in time, myself and others are listening to the arguments on both sides.” [2]
The current debate stems from a two-year-old ruling by the Public Utilities Commission of Ohio (PUCO). At that time, PUCO had ordered SBC to lower the cost of access.
According to SBC spokeswoman Caryn Candisky, the result is that “[f]rom our perspective, we are subsidizing our competitor at [those] rates.” [3]
The question is whether PUCO was right to cap SBC’s access rates. The intention was to increase competition within the industry, and thereby improve the lot of consumers. In the short term, the action has led to lower costs for consumers. Government-mandated rates for any product, however, rarely come without a cost.
In this case, consumers may be getting a raw — albeit politically expedient — deal. Consumers may be pleased with the lid on prices, but PUCO is setting a dangerous precedent by setting bargain basement prices for access to infrastructure in which a company has invested heavily. Over time, local network providers will come to recognize that investing money into building up a network is just like handing money straight over to their competitors.
Policymakers need to be reminded that forced competition does not have the same benefits as true competition. Forced competition, while lowering prices in the short run, distorts the incentives to invest in infrastructure by creating a “something for nothing” business environment. The incredible innovations presented by wireless and Internet telephony, for instance, have the potential to break the land line monopoly, but while these currently face less stringent regulation, the capricious standards set for land lines cast a pall upon the entire industry.
Rather than focusing on competition for political preference and the previous work of others, true competition lowers prices, improves quality, and will in the long run eliminate the need for telecommunications regulation. Policymakers should carefully consider these realities before taking any steps to try leveling this playing field through arbitrary rule making.
Footnotes:
[1] Laura A. Bischoff, “SBC fights to hike fees,” The Dayton Daily News, 20 November 2003.
[2] Ibid.
[3] Ibid.
