Telecom politics starting to shift

Telecom wars are heating up in every state as AT&T, MCI, cable companies
and other new entrants seek agreements to enter local markets to compete
with the local phone company.

But this is more than a business story about the deregulation of
an industry. It is also becoming a political story. Reason: Political
and business leaders are beginning to understand that reforming the way we
regulate the telecommunications business will generate winners and losers
-- just as the deregulation of the airline industry meant lower prices for
some; higher prices for others; and no service at all for many small and
midsize communities once well-served by the old system.

Similarly, new competition in the telecommunications marketplace
will serve some consumers very well, showering them with new choices and
lower prices, but could leave others holding the bag.

That's why business leaders and elected officials at the state and local level are getting involved. Reason: They understand that advanced
telecommunications that is also reliable and available to everyone -- what
the telecom wonks call "ubiquitous" -- is on the short list of ingredients
for any unit of government or private enterprise that wants to claim "high
performance" qualities.

Recalling how government "reforms" nearly destroyed railroading and hog-tied
the once-proud U.S. Postal Service, civic leaders also understand that sloppy telecom "reform" could threaten ubiquity and degrade the network, causing potholes in a state's information superhighway.

Here's the rub: Residential phone users around the country may be
forced to bear the cost of breaking up old monopolies and fostering new
competition. Reason: Public policies, more than 100 years old in some
cases, now require local telephone companies to provide heavy subsidies to
reduce the price of telephone service to people in residential areas and
to equalize the prices charged to (low cost) urban dwellers and (high
cost) rural people.

Where did these subsidies come from? They came from decisions by
state and federal regulators to jack up the prices of other services --
for example, long distance and business phones. In fact, in some states
the price (not the cost) of a business line is three or four times the
price (also not the cost) of a residential phone line.

The new telecommunications law is changing all this because in those areas with more competition, the price of a business phone is likely to come down (toward cost) and the price of a residential phone is likely to go up (toward cost).

Business phone prices will also come down because most new local
service providers will focus on business (not residential) customers.

Listen to AT&T chief executive Robert Allen, "It's logical that bees
follow honey and banks are robbed because that's where the money is, and
our focus will be on concentrated markets in major cities with
concentrations of business customers."

So AT&T and other providers will compete heavily in downtown areas of
major cities where they find high density, high volume users of telecom services.
They will reduce prices to win or keep customers. Result: No more jacking up prices of business lines to subsidize lower density rural and residential rates.

As traditional subsidies are removed, state regulators face difficult choices:
Let prices go up, require all providers to share the burden of serving unprofitable customers, or lose network reliability and ubiquity.