Capital Goods - August 2009

Getting the right number
By Scott Mooneyham

Back in the ’90s — you remember, when the dot-com bubble pushed your stock portfolio so high that early retirement seemed right around the corner — Congress and Bill Clinton decided the time had come to overhaul the nation’s telecommunications laws. In the previous decade, AT&T Corp.’s national monopoly on local telephone service had ended with the company broken into seven regional providers. Competition for long-distance service had become fierce, resulting in lower costs for consumers. Why not bring the same kind of competition to local phone service?

President Clinton signed into law the Telecommunications Act of 1996, its intent, in part, to bring about local telephone competition. The legislation was called the biggest overhaul of telecommunications law since the 1930s. As we all know, competition increased, and our bills for local service dropped dramatically and immediately. What? Yours didn’t?

The legislation quite wrongly presumed that the regional providers, the Baby Bells, would welcome competition in local markets in exchange for their being allowed to offer long-distance service. They still owned most of the wires going to homes and businesses, but minus a decision to enter the long-distance market, no leverage existed to force these local monopolies to open their lines to companies clamoring to get into the local market. Once the darlings of Wall Street, competitive local-exchange carriers — CLECs — withered on the vine.

What the law was unable to accomplish, technology seems to be bringing about. Competition in the wireless market, combined with increasingly more reliable service, has many in the younger generation not even bothering to have a land-line phone. Broadband also allowed cable companies to move into local-telephone service, and the Internet has changed the way people communicate. Responding to this technology-driven competition, North Carolina legislators decided to free local-service providers from much of the oversight that governed them for decades. They did so with no huge public outcry about monopolies taking advantage of consumers or special interests holding sway in the state capital. Consumer advocates complained, but they weren’t nearly as loud as, say, when cable companies pushed legislation to shut down the city of Wilson’s Internet and broadband network. Consumers, it seems, recognize the advantages of competition, no matter the provider.

The changes that lawmakers approved allow the 16 local-telephone-service providers operating in North Carolina to set their own rates for packaged services. In the past, the state Utilities Commission, which oversees companies operating as local monopolies, set rates. Rates for stand-alone basic service will continue to be regulated to a degree, with increases tied to inflation. The law also requires that rural customers not be charged more than those in urban areas for basic service.

Dallas-based AT&T Inc., the state’s largest provider of local service with 1.7 million land lines, points out that the 7 million wireless phones in the state are nearly double the connected kind. In this wireless world, the company no longer acts as a local monopoly. A handful of other states, including neighboring Tennessee and South Carolina, have passed similar legislation, but not everyone is convinced that this broadband revolution has so changed the competitive landscape that all consumers will be protected.

Al Ripley, a staff lawyer with the liberal-leaning North Carolina Justice Center, says many rural residents have no access to a wireless signal or cable offerings of any kind. “It’s not a question of the technology. It’s how densely it’s spread,” Ripley says. “There are places in Durham County where you can’t get a [cellular-service] signal.” He notes that neither legislators nor local-service providers made an effort to quantify how many people in the state have no option for phone and data other than land lines. Other potential trouble for consumers: Twenty-five years after the break-up of Ma Bell, consolidation and mergers continue on all telecommunications fronts, meaning decreasing competition.

Still, remember those bag phones from 20 years ago? How about those costly, by-the-minute cell-phone charges that had you seeing red just a few years ago? Do you recall being amazed by that slow, ponderous dial-up connection when you first got Internet service in your home? Technology marches on. And if history is any indication, it should continue to bring more competition and more choices for consumers when it comes to communicating with the wider world.

Scott Mooneyham is the editor of The Insider,