Change of Season

Posted: 09/2001

Change of Season
Hollings’ Leadership Leaves No Question That Bell-Friendly Legislation is a Moot Point
By Kim Sunderland

Sen. Ernest "Fritz" Hollings
Sen. Ernest “Fritz” Hollings

Sen. Ernest “Fritz” Hollings (D-S.C.), the new chairman of the powerful Senate Commerce Committee and long-time Bell adversary, is poised to introduce legislation that would require the RBOCs to separate into distinct wholesale and retail operations.
Competitive carriers already are lobbying heavily for such a proposal in some states.

Because the so-called collapse of telecom financing on Wall Street has had a significant impact on the national economy, such legislation obviously would have an impact on the telecom policy climate in the nation’s capital and the investment community.

And as Hollings plans new legislation to increase competition, certain congressional members continue pushing H.R. 1542, the Internet Freedom and Broadband Deployment Act, a.k.a. the Tauzin-Dingell bill, which calls for deregulating competitive data services for the Bell companies.

“These two events will bring together the diametrically opposed positions of the competitors of the RBOC seeking to gain a competitive advantage through more restrictive legislation, and the RBOCs themselves seeking regulatory relief,” says Ron Cowles, principal analyst for the telecom and networking group of Dataquest Inc., a unit of Gartner Inc.

“There is a lot at stake and the debates will be intense,” Cowles says. “During the course of deciding some very important issues, policymakers should not be drawn away from the main objective, which is providing ubiquitous advanced broadband telecommunications services for consumers and increasing competition.”

How to attain those goals is obviously what the policy hullabaloo is about on Capitol Hill, which Wall Street is watching closely.

Hollings isn’t shying away from the attention. This summer, he has conducted hearings designed to answer why competition hasn’t risen in the local phone markets since the Telecommunications Act of 1996 became law. His theory is that the problem has been with the Bells, not with the law.

“Some have questioned whether there are problems with the [Telecom] Act,” Hollings said in mid-June. “What we will find as we explore the record … however, is that the problems arise, not from the act, but from the efforts by the Bells to avoid the requirements of the act and enter the long-distance and broadband markets, while simultaneously preserving their local monopolies.”

The Commerce Committee chairman doesn’t mince words, and he’s determined to have the Telecom Act’s market opening provisions implemented in the way he believes Congress originally intended when it passed the act and sent it to President Clinton for his signature, making it the law of the land.

“The one thing that this committee will not do is function at the dictates of Bell companies,” Hollings says. “This is what is happening in the marketplace and is the crux of the difficulties we are experiencing today in the telecommunications industry.”

In fact, the telecom industry is critical to the entire infrastructure of the nation’s economy, Hollings says, citing U.S. Commerce Department statistics showing that telecom accounts for nearly 10 percent of total U.S. economic output.

“All of America’s industries–and American consumers in general–have a crucial stake in the structure of our telecommunications industry,” he says. “If it’s competitive, our costs are cheaper and services better. If it is not competitive, costs will be higher and quality of service will suffer. It all begins with telecommunications.”

Many sources–albeit none of them the Bells–are convinced that local competition could flourish if the RBOCs were forced to split their businesses into two parts.

“Adopting a structural incentive plan is a simple solution to a complex problem,” says Maureen Flood, director of regulatory and state affairs for the Competitive Telecommunications Association (CompTel). CompTel has been at the forefront in promoting the idea of structural separation of the Bell companies.

“Structural incentives, once implemented, require far less regulatory oversight and should largely be self-enforcing,” Flood explains. “Because inefficient provisioning systems would harm its own retail operation, an incumbent’s wholesale affiliate should proactively seek efficient practices, while its retail operations could be regulated like any other competitor. The same powerful incentives that today frustrate regulators would be harnessed to promote competition instead.”

Maybe the idea’s time has come. Maybe Hollings realizes, as do many competitive carriers, that structural separation would be a fine thing for the entire nation. And generally speaking, it’s likely that the idea is a catalyst for changing the way telecom policy is being approached in Washington. Since Hollings assumed control of the committee earlier this year, the mindset taking hold is that competition must begin to thrive more quickly.

Scott Cleland, who heads up independent research firm The Precursor Group, says most folks are “missing the importance of the legislative debate, thinking it is just about legislation and whether it passes.”

“What’s really going on is a debate on telecom policy overall and whether the failed Telecom Act-voice-resale-competition experiment should be repeated for data or not,” Cleland says.

The experiment already is under way, and it is slowing DSL deployment, he says.

“The question is if the experiment will continue until it reaches the same level of failure that voice policy has,” Cleland says.

Hollings, a staunch advocate and one of the original architects of the Telecom Act, says it’s irrelevant whether the debate is over voice or data.

“I have heard that the Bells would like to make this a debate solely about broadband, but the fact of the matter is that this is not a debate about broadband,” Hollings says. “This is a debate about how to ensure competition in local telephone markets, whether it is the provision of local or broadband service.”

Being blunt and feisty over local competition likely won’t win over the Bells for Hollings, but it sure has made congressional members stand up and take notice.

For example, in the House, where H.R. 1542 emerged under sponsorship from Reps. W.J. “Billy” Tauzin (R-La.) and John D. Dingell (D-Mich.), members aren’t totally behind the measure anymore.

“One of the great questions we have regarding whether or not we schedule it [Tauzin-Dingell] in the House is ‘Will the Senate take up that work?'” announced Republican Majority Leader Richard K. Armey of Texas.

Armey says he wasn’t thrilled with the idea of placing a more pertinent piece of legislation on the back burner in order “to schedule something that is voted in the House [and] that will never see the light of day in the Senate.”

The Senate Commerce Committee, which would have jurisdiction over the Tauzin-Dingell bill, has made it clear that it won’t take up the measure, but might consider alternative legislation that could include tax credits for deployment of high-speed Internet service in rural areas.

Would Hollings go as far as proposing structural separation?

“That’s hard to say–we’re not sure that he would go that far, but it’s clear that Hollings doesn’t favor Tauzin’s approach,” says Celeste Powers, spokeswoman for the Association of Communications Enterprises (ASCENT).

“What we are sure about is that everyone in Congress is beginning to agree that local competition must get better and that Tauzin-Dingell isn’t the answer,” Powers says. “And it’s not likely that Billy Tauzin would compromise on his bill.”

If Congress can get together collectively on a course for telecom policy, in turn, that’s likely to send a more positive message to Wall Street investors, who in return could unleash capital for the competitive carriers.

“What happens here [on Capitol Hill] definitely affects what happens on Wall Street,” Powers says.


Association of Communications Enterprises
Competitive Telecommunications
Dataquest Inc., a unit of Gartner Inc.
Senate Commerce Committee
The Precursor Group
U.S. Department of Commerce

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