A birthday party: the terrible or terrific two's? 1996 Federal Telecommunications Act.

• Author: Wallman, Kathleen
• Position: Second anniversary of the 1996 Telecommunications Act

Good afternoon and welcome to the Ohio Public Utilities Commission's observance of the Telecommunications Act's "Cotton Anniversary."(1)

That's right. The first anniversary is paper, and the second is cotton.

Now, paper made sense as a first anniversary observance. There were certainly tons of trees that were felled in the first year of implementation of the Act, with the new rules coming out and all the litigation, the court briefs and the judges' decisions.(2) And that's not over yet. Maybe the most appropriate thing we could do to observe the Act's anniversary is for every one of us to go out and plant a tree in the interest of avoiding deforestation.

I really don't know what to make of cotton as the second anniversary gift. There's certainly been nothing soft and fluffy about what policymakers, lawmakers, the public, and the industries affected by the Act have been through in the past couple of years. It has been a bumpy process, full of twists and turns and unexpected developments.

And through this wild fide, everyone who had anything to do with the birthing of the Act has awoken to the reality that the euphoric predictions of instant cross-industry competition that lots of people made when the Act was being debated,(3) and to which lots of people in government succumbed, were just that--euphoric--not real.

What the past two years confirm are three fundamental principles: first, competition will come first to the markets where new entrants can achieve the highest margins.(4) This means business markets before residential markets, and urban before ex-urban markets. This principle rules like a tyrant. There is no getting around it. It is not a good thing or a bad thing. It's just a reality.

Second, opening a market that is a near monopoly overall and a plain old monopoly in residential markets to competition is a hard, grueling process for new entrants, incumbents, and policymakers. At every single step of the way, there are colorable questions about how exactly the law and the rules were meant to be interpreted and applied. Policymakers have been drawn into the finest details of implementation in order to help make local entry work, and the work is still far from done.

Third, it is essential that we not lose sight of the public interest and consumers' interests. These are two separate concepts that usually coincide, but not always. Consumers' interests are in lower prices and more choice.(5) The public interest is about that, too, but it's about more than that, as well. It's about the long term, about having a network that will serve today's needs and fulfill today's interests in price and choice, but will also serve tomorrow's needs for high bandwidth and reliability. It has become temptingly easy to be drawn into the battle over the minute details that need to be supervised, and to lose sight of the big picture.

The first two principles counsel patience in the implementation process. They counsel the importance of staying the course and seeing through the process that the Act set in motion.

The third principle, however, counsels impatience--restlessness. Because the success of the Act will be judged by the public--by consumers--and how well they judge those who passed the law and those who are charged with implementing it.

This is what I want to address today. Instead of talking about the Cotton Anniversary, I think we should be thinking about what the Act and its implementation will mean and look like ten years after its implementation. That is the frame of reference that should be relevant to us, and we should be focusing on what it will take to make the public judge the Act a success then. I'm not saying we should run away from the responsibilities that the Act assigns to policymakers and the industry today. I'm only saying that we should not let today's obstacles obscure our responsibility as stewards of the long view. That's why I want us to think about the tenth anniversary.

Now, I hate to tell you what the tenth anniversary is. You know that the twenty-fifth is silver, and fiftieth is gold. The tenth is tin. But let's not worry about that.

TWO VERSIONS OF THE FUTURE

There are two competing versions of the future out there. I submit that the public will be saying one of two things about the Act when it is ten years old.

They will either be saying: "The Telecommunications Act of 1996--what a great idea."

Or, they will be saying: "The Telecommunications Act of 1996--what were they thinking?"

Now, obviously, no one aspires to the second version of the future. The question is: what will it take to make sure that we achieve the first version? And to understand that, we should be asking what's in this for consumers.

WHAT'S IN IT FOR CONSUMERS?

There are a number of concrete steps that policymakers can take to capture the flag on the first, positive version of the future. But to make sure that there is real progress in that direction, it is crucial to understand what the Act means for consumers.

When it comes to what consumers get out of the Act, the answer most frequently offered is "more choice and lower prices."(6) I think we should take a closer look at that.

What kinds of additional choices are consumers going to get? The answer most frequently offered here is "more choice in local telephone service."(7) This is clearly a good thing. Monopolies in any industry are just not as good as competitive markets in producing value and innovation in products and services.

But what other choices are consumers going to get, and will they value them? When the Act is fully implemented, the Bell companies will be allowed to offer long-distance service. There are already dozens of long-distance companies from which consumers can choose today; will consumers value being able to choose from among even more long-distance carriers? The FCC's Chairman Kennard has said that once the Act is fully implemented, no one will ever again be able to eat dinner in peace with all the telemarketing calls that will be inundating the household.(8)

More choice is better than no choice. But the arrival of new, aggressive marketers of various network services will necessitate, at the very least, careful consumer education about what all the new choices mean, how to evaluate them, and how to manage the flood of information. Consumers will need a great deal of help in managing the formidable information search costs that the new system will heap upon consumers. Consumers will need the telecommunication equivalent of "nutritional labeling" that helps them evaluate and compare service offerings. The Administration's Statement on Retail Competition in Electricity adopts the position that this is one of the most important things that policymakers can do for consumers in the transition to a competitive market.(9)

Another form of consumer choice that is touted is that when the Act is fully implemented, consumers will be able to buy an integrated stack of services, or bundled services--local, long-distance, data, and video--from a variety of integrated service providers.(10) If this develops in a way that offers consumers lower prices for the combined services, it might very well be as great as its proponents are saying it will be. But it will also be important to help consumers manage the transaction costs of deciding whether the combined services really are cheaper given their usage patterns and preferences. It is already a challenge for many long-distance customers to figure out which calling plan is best for them, and that challenge will have many more layers when competition has fully flowered.

And it will be important that the integrated service providers offer consumers something more than a repackaging of the same services that they can buy individually right now.

This is the kind of choice that policymakers and the industry need to keep their eye on. The version of the future that consumers deserve when the Act is fully implemented is not a warmed over version of what they can get today. In the year 2006, consumers will judge the Act no success at all if what we have done is allow them to buy local service from their long-distance company, and long-distance service from their local telephone company. In fact, a lot of people are likely to say, "Isn't that a lot like where we started this whole process in 1984 before we dismantled AT&T?"

Now, to be sure, the Act when fully implemented envisions...