Can Technology Save Competition Can Technology Save Competition in Telecommunications? in Telecommunications?

John W. MayoJohn W. MayoGeorgetown UniversityGeorgetown Universitymayoj@georgetown.edumayoj@georgetown.edu

(202) 687-6972(202) 687-6972

Phoenix CenterDecember 16, 2004

The Optimism of 1996The Optimism of 1996

““Opportunities abound” for both industry and Opportunities abound” for both industry and consumers consumers – Commissioner Susan NessCommissioner Susan Ness

““Catapult this country right into the Information Age”Catapult this country right into the Information Age”– Commissioner Rachelle ChongCommissioner Rachelle Chong

““I can now confidently predict that the I can now confidently predict that the Telecommunications Act of 1996 will usher in an era Telecommunications Act of 1996 will usher in an era of communications innovations that will shortly make of communications innovations that will shortly make our present arrangements as antiquated as the our present arrangements as antiquated as the Guttenberg Press.”Guttenberg Press.”– Senator Howard BakerSenator Howard Baker

The Vision of the Post-The Vision of the Post-Telecommunications Act CompetitionTelecommunications Act Competition

Pre-divestiture

BOC

Long lines

Post-Divestiture

BOC

MCI AT&T MCI IXC

Post-Act

BOC

LDBOC

CLEC

LD

The Reality of 2004The Reality of 2004

“ “Since Congress passed the Telecommunications Since Congress passed the Telecommunications Act of 1996,the [RBOCs] have had three primary Act of 1996,the [RBOCs] have had three primary policy objectives: 1) long-distance entry in every policy objectives: 1) long-distance entry in every state; 2) elimination of unbundling state; 2) elimination of unbundling requirements…; and, 3) elimination of competitive requirements…; and, 3) elimination of competitive entry strategies…. We believe the Bells have entry strategies…. We believe the Bells have largely achieved these goals. …they face largely achieved these goals. …they face shrinking competition.” [Source: Legg-Mason, shrinking competition.” [Source: Legg-Mason, September 15, 2004September 15, 2004

@Link 2nd Century Actel Adelphi Business Solutions Adelphia Business Solutions Advanced Radio Telecom Advanced Radio Telecom American MetroComm Ardent Communications BroadRiver Communications Columbia Telecommunications ConnectSouth Convergent Communications Covad Communications Digital Broadband Communications e.spire Communications

Fairpoint FutureOne General Datacom Global Crossing GST HarvardNet ICG Communications Jato Maverix.net McLeodUSA MetStream Mpower Communications Net2000 Communications NETtel Network Asset Solution Network Plus NorthPoint Communications Omniplex Onvoy OpTel Pathnet

Picus Communications Prism Communication Services Rhythms NetConnections Startec Global Communications Teligent UBNetworks Vectris Vitts Williams Communications Group Winstar XO Communications Yipes

Bankrupt and Discontinued Telephony Entrants

Can Technology Save Competition Can Technology Save Competition in Telecommunicationsin Telecommunications

Verizon Communications Inc. (VZ.N) and Qwest Verizon Communications Inc. (VZ.N) and Qwest Communications International Inc. (Q.N) said on Thursday Communications International Inc. (Q.N) said on Thursday they had seen they had seen large drops in new residential telephone large drops in new residential telephone lines grabbed by competitors since AT&T Corp. (T.N) lines grabbed by competitors since AT&T Corp. (T.N) announced a retreat from residential service in Julyannounced a retreat from residential service in July….….

AT&T's decision stemmed from changes in those FCC AT&T's decision stemmed from changes in those FCC rules that it said would lead to cost increases. Industry rules that it said would lead to cost increases. Industry executives and analysts say AT&T's move and similar executives and analysts say AT&T's move and similar strategies by other Baby Bell competitors strategies by other Baby Bell competitors might allow the might allow the Bells to recapture most of the 17 million local lines that Bells to recapture most of the 17 million local lines that competitors now lease under federal rules, boosting competitors now lease under federal rules, boosting earnings.earnings. (emphasis added) (emphasis added) – Reuters -September 9, 2004Reuters -September 9, 2004

Can Technology Save Competition Can Technology Save Competition in Telecommunications? in Telecommunications?

The Other “Reality”The Other “Reality” Telecommunications markets are all “perfectly contestable” and ILECs Telecommunications markets are all “perfectly contestable” and ILECs

face robust competition from –face robust competition from –– Cable, Wireless, Power Lines, Internet (VOIP)Cable, Wireless, Power Lines, Internet (VOIP)

Need to ask serious questions: – Do Wireless and Landline compete in the same market?– Are Power companies actually providing telephony?– Can Cable offerings in California limit market power of Verizon in

Washington DC?– Does the broadband platform limit the extent of competition from

VOIP?– Should public policy be content with a duopoly platform for as far

as the eye can see?

“If we knew what we were doing, it wouldn’t be called research, would it?”

Albert Einstein