If I Had $1.7 Billion…

Posted: 2/2004

If I Had $1.7 Billion…
By H. Russell Frisby Jr.

Imagine for a moment you
more than $1.7 billion. What would you spend it on?

If you were the Bell companies BellSouth Corp., SBC
Communications Inc. and Verizon Communications Inc. you would collectively
use the bulk of those funds to pay fines for not complying with rules designed
to foster local competition. Next, youd toss in several hundred million for wining and
dining lawmakers around the country in an effort to rewrite laws governing the
telecommunications industry. Then, for good measure, youd spend the last $40
million or so on a public relations campaign designed to thwart competition and
make an end run at restoring your monopoly (see chart below). And this
doesnt include the millions of dollars spent in the 50 states to influence
legislators and regulators.

Image: Adding it Up

But imagine what could have been done with this $1.7 billion
if it werent squandered on efforts to deny competitors access to the public
switched telephone network; to slow roll the development of innovative,
lower-cost bundles of voice and data services; and to keep customers captive to
the Bell legacy network.

Consider the deployment of fiber-to-the-premises (FTTP). Last
year, BellSouth, SBC and Verizon announced they planned to deploy fiber deeper
into the local network so they could better deliver highspeed Internet access,
voice and other advanced services in a bundle they believed would be attractive
to consumers. Skeptics might say the Bells fiber deployment plans were just
another empty promise in a string of false promises the Bells frequently
make to gain regulatory concessions and forestall competition.

According to the editor of DSL Prime, the Bells have
indicated they intend to spend between $500 and $800 per FTTP customer this year
through 2006.

With that in mind, lets do a little math. The Bells spent
$1.7 billion on efforts to stall competition and lobby against opening the
telecommunications markets. If the Bells are going to spend between $500 and
$800 per home on FTTP deployment, then for $1.7 billion they could have deployed
fiber to somewhere in the neighborhood of 2.1 million to 3.4 million homes,
rather than trying to stall the inevitable competition.

Looked at another way, if you factor the $1.7 billion into
equations used by the Department of Commerce to determine the impact of telecom
equipment investment, the Bells could have created 30,000 jobs had they invested
their money upgrading their networks, rather than spending it on fines or
lobbying efforts. Moreover, had they so chosen, the Bells could have expanded
the nations gross domestic product by almost $5 billion over the last several

The Bells have been given multiple opportunities to enter into
new lines of business and invest in network improvements that would ultimately
improve their balance sheets and the quality of service they provide to their

One of the first large-scale opportunities was the 1996
Telecommunications Act, which gave the Bells the chance to offer long-distance
service, as part of a lucrative service bundle, in exchange for opening the
local markets to competition. The Bells have taken full advantage of the
long-distance market. They are now able to offer long distance in every state
and have accumulated more than 30.8 million long-distance customers in the last
few years. In some of the states in which theyve had long-distance authority
for a few years, the Bells have garnered as much as 40 percent of the
long-distance market.

Though they have had the chance to profit in long distance,
the Bells have not lived up to their end of the bargain prescribed by the 96
Act requiring them to fully open the local market to competitors. Because of the Bells constant attempts to seek full
deregulation, challenge every rule that promotes competition and deny
competitors access to the critical pieces of the local network, competitors only
have been able to garner a 14.7 percent local market share in the seven years
since passage of the Telecom Act.

Another opportunity the Bells neglected for decades was the
deployment of technology that would increase the capacity of the legacy copper
network and bring groundbreaking new services to consumers. That technology was
DSL, a broadband access methodology that began to gain traction only when the
heat was turned up by competitive DSL upstarts like CompTel/ASCENT Alliance
member company Covad Communications Co. and cable companies that went full-speed ahead with their own
high-speed Internet access offerings.

Competitive pressure forced the Bells into a new line of
business that has proven quite profitable. As of third quarter 2003, BellSouth, SBC and Verizon were
serving a combined 6.6 million DSL customers and have had phenomenal success
offering bundles of services that include local, long distance and high-speed
Internet access.

The most recent opportunity for the Bells was the chance to
roll out broadband facilities without being hampered by regulations they claimed
created disincentives to invest in new infrastructure. For years, the Bells said
they would only invest in broadband networks if the proper incentives (read:
deregulation) were in place. The Triennial Review Order issued by the FCC in
August 2003 gave the Bells got exactly what they said they wanted. The FCC
loosened regulations governing the Bells deployment of new network
infrastructure to encourage investment in advanced architecture. The Bells no longer are required to share these so-called new
networks with competitors and could deploy without fear of diminishing their

But, no sooner than the FCC handed down the decision, the
Bells began reneging on their promises. They claimed the Triennial Review Order
still did not give them the proper incentives and they began pushing for what
they really wanted even more deregulation. This included loosening the rules
governing their historical monopoly over voice telephone service.

In a Dec. 5 speech, FCC Commissioner Kevin J. Martin discussed
the Bells response to the Triennial Review Order. He noted, the critical
policy decisions made during the course of this past year create a window of
opportunity for incumbent telephone companies an opportunity for
incumbents to invest their way out of legacy regulation.

Commissioner Martin went on to say it is the incumbents
that are now at a crossroads. Do they remain providers of traditional voice
services subject to regulation, or do they seize the opportunity to enter new
competitive markets and invest in, and deploy, advanced infrastructure in a
minimally regulated environment?

Martin also compared the incumbent telcos to the cable
companies, which had their own monopoly on video services in the 1980s, but were
heavily regulated, forced to lease capacity and saddled with significant debt.
He noted, the cablecos, much like the incumbent telcos, were given a light at
the end of the tunnel, in the form of laws enabling them to begin offering
new services if faced with effective competition by new entrants.

When given the opportunity, the cable companies seized the
day. They realized they needed to invest significant sums of money to deploy the
state-of-the-art networks required to compete against direct broadcast satellite
and create a foundation for advanced services, such as high-speed Internet
access and telephony. By some estimates, according to Commissioner Martin, the
cable companies have invested more than $80 billion in network upgrades.

In his view, incumbent phone companies have the same
opportunity now. Commissioner Martin stated if incumbents want to seize
the opportunity, they cannot sit idly by or wait for the commission to save

The Bell companies with a huge war chest of cash and a
historical cache of captive ratepayers to which theyre now able to market a
wider variety of services seem to be satisfied trying to stall competition
for as long as they can.

What they now fail to see through their myopic monopoly
mindset is competition is real. The more than 400 CompTel/ASCENT Alliance
member companies are the ones that embarked on risky entrepreneurial plans to
bring bundles of local, long-distance and broadband services to consumers across
the nation. By deploying a variety of business models, these competitive service
providers have spurred a revolution one that has driven consumer costs down,
led to the development of new services and created alternative offerings that
caused the Bells to update their stale service portfolio.

This month marks eight years since the passage of the 96
Act. The Bells need to live up to the promises they made to the nation so long
ago. Consumers, regulators and lawmakers are growing weary of the
Bells constant excuses, extensive lobbying and excessive whining. These
wasted efforts should be replaced by real investment and innovation that will
drive the economy. But those positive results are achievable only if true
competition in the marketplace is allowed to thrive.

H. Russell Frisby Jr. is CEO of the CompTel/ASCENT Alliance.

CompTel Ascent Alliance
BellSouth Corp.
Covad Communications Co.
Federal Communications Commission
SBC Communications Inc.
U.S. Department of Commerce
Verizon Communications Inc.

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