Commerce Department risks constituents

Corporate America needs 'open markets' more than it needs the NTIA.

BY STEPHEN N. BROWN

It has a big name but a small part in telecom policy, even though the National Telecommunications and Information Administration (NTIA) describes itself as the Executive Branch "agency responsible for developing and articulating domestic telecommunications policy." Just like the Department of Labor looks after organized labor's interests, the Commerce Department and its subdivisions, including the NTIA, promote the interests of big business no matter which party is in power. Unlike the Federal Communications Commission, Commerce and the NTIA are not expected to consider the public interest or to give it priority occasionally over private interests when determining policy.

In the Bush administration, the NTIA's chief activity is supporting the wireless industry's effort to acquire spectrum now used by the Defense Department and other federal agencies. At the start of the federal government's "spectrum summit" held in April, Commerce Secretary Donald Evans said, "While debate over spectrum allocation has sometimes been a heated one...it is not an option to close the door on new technologies, and the benefits they bring to our society"-an indirect way to urge federal users either to vacate spectrum or accommodate the private sector. Once the spectrum is acquired and parceled out, the private sector's goal is to remove limits on spectrum used by any single company, in anticipation of the wireless industry consolidating to a near-monopoly status as the weaker carriers are purchased or bankrupted.

Removing restraints
Like its parent organization, the NTIA is predisposed to remove federal restraints from its constituents, judging from its first major foray into the wire-side of the telecom business, docket 011109273-1273-01, "Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications." Three things suggest the NTIA's request was an effort to gather evidence supporting the Tauzin-

Dingell bill and incumbent phone companies:

The request was issued in October and had a Jan. 19 deadline, five weeks before a House vote on the bill.
The questions looked biased-one respondent, NewNetworks Institute, told the NTIA, "[your questions] about competitive issues seem to neglect the reality...competitive DSL providers, CLECs [competitive local-exchange carriers], and ISPs [Internet service providers] are on life support [because of] Bell business practices...questions about the future of broadband services mostly...ask...how...the regulatory environment is impacting the Bells."
The NTIA has not yet utilized the information for policy purposes; there are no reports showing how the information bolsters existing policy or leads to new ones.

The NTIA's intent was clear, because many respondents rehashed the Tauzin-Dingell debate about incumbents' sharing their networks with competitors. But of the 95 responses, only two show that fiber-to-the-home (FTTH) is deeply entangled with regulatory policy.

Verizon says "sharing" prevents telephone companies from investing in FTTH networks: "DSL is not an end-state technology...telephone companies will likely need to replace a great deal of their copper distribution plant with fiber optics...Successive generations of broadband will require [FTTH]...or other architectures....Unbundling of FTTH would...create enormously complex...problems....Companies will not make the gigantic investments needed...unless the regulatory regime" changes.

Cable & Wireless (C&W) rebutted Verizon, saying that FTTH unbundling is straightforward and national policy in Japan. "In Japan...incumbent local-exchange carriers...are required to unbundl[e]...fiber local loops...provide dark fiber between competitors' customer sites, and an optical distribution frame in the incumbent's central office [which is]...connected to the competitor's optical...equipment collocated in the incumbent's central office....[Japan's policy] enables C&W IDC to invest in competitive broadband local-network facilities to an extent that has not proved possible" in the United States.

Incumbents are compelled to share their networks, perhaps even fiber loops, because the 1996 Telecommunications Act was greatly influenced by economist William J. Baumol. His response to the NTIA shows why the law treats incumbents as it does. In the 1980s, Baumol developed "contestable market" theory and changed how the federal government restrains anticompetitive behavior. The government used to consider a company with large market share as ripe for scrutiny because market share was associated with anticompetitive behavior. To the great benefit and relief of large corporations, Baumol convinced the legal community that market share is not the issue; what matters is that competitors have the opportunity to enter the market. If the opportunity exists, the market is "contestable" or open to competition, regardless of whether competitors actually enter.

Baumol's rebuttal
"Contestable market" theory was embedded in the Telecom Act to serve two purposes: restrain the incumbents and not use their 100% local market share against them. With Baumol's principle, the incumbents could enter a long-distance market even if there were no competitors entering the local market, provided the incumbents kept their markets open to competition. Baumol makes this point and rebuts Verizon in his comment to the NTIA: "If access to...[incumbents'] facilities and interconnection is necessary for a competitive carrier to offer broadband service to customers economically, and unavailability of such access would impair its service offerings, regulations that require such access to be offered promote efficient investment, they do not impede it. And for that reason, the...Act's requirement that such necessary access be supplied constitutes no distortion of the proper incentives for investment."

The NTIA should consider the consequences of Tauzin-Dingell overthrowing Baumol's open market principle, which released American corporations in general from market share regulation. If one sector of American business repudiates the "open market," before long, market share regulation looks attractive to Congress. Corporate America loses if incumbents win. Commerce is not serving its overall constituency by letting the NTIA jeopardize the whole to service a few.