The telecom wars

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In the past few weeks, the Bell companies have opened up with cannonades from every direction, all aimed at me, FCC Commissioner Kevin Martin, Republican strategist Grover Norquist and other conservatives who don't support their position. Worse, the Bells are now attacking the Bush administration at a critical time.

In a series of "open letters" and op-eds, the Bells and their allies have taken issue with free-market advocates who believethebestwayto achieve competition in local phone service is by allowing access to the Bells' local network, a basic principle of the 1996 Telecom Act backed by every conservative member of Congress. The network was built by Ma Bell over the past 100 years with a government-guaranteed rate of return on investment and huge subsidies paid by ratepayers.

The White House has stayed scrupulously neutral, allowing the experts at the FCC to make key decisions, but that is not good enough for the Bells. They and their allies first took the fight to the administration last month, with a letter from Sens. John Kerry, Hillary Clinton and seven other Democrats trashing President Bush on the economy. The letter included the laughable assertion that the country's alleged economic woes were somehow the fault of Mr. Bush's failure to implement a "national broadband policy." When Mr. Norquist criticized the Democrats, they found defenders in 12 Bell friends at conservative think tanks, who in turn launched a personal attack on Mr. Norquist, reported with delight by The Washington Post.

Next, the Bells and their allies took their fight to the pages of the Wall Street Journal, with two over-the-top editorials blasting Mr. Bush for the "damage" he has done to the economy for not clearing the way for the Bells' to expand their monopoly.

Eight years ago, after long and serious debate, Congress established a road map to bring competition to the part of the telecom system that was still a monopoly: the last mile that connects your home with the greater wired world.

Today, competitive local exchange carriers (CLECs) have signed up 19 million customers that used to belong to the Bells, while the Bells, with offerings in all 50 states, have grabbed 34 million long-distance customers.

But the Bells are unhappy. They object to something called UNE-P (unbundled network elements platform), the regime by which CLECs lease parts of the system. (By the way, the Bells service those customers mainly by leasing lines from long-distance incumbents.) Prices, the Bells contend, are too low. The Federal Communications Commission fought a heated battle over the UNE-P issue last year. By a 3-2 vote, the UNE-P regime was retained.

Then, last Tuesday, the U.S. Appeals Court for the District of Columbia issued an opinion siding with the Bells in their suit to block the FCC ruling. As the Financial Times put it last week, "The effect of the decision is unfortunate. It hands greater power to local incumbents at a time when competition has not fully developed. The Bells still provide about 85 per cent of local services."

The Bush administration must now decide whether to continue its policy of backing the FCC by asking the Supreme Court to take up the case -- or to acquiesce to the Bells.

The issue sounds complicated, but it revolves around a simple idea: What's the best way to expand telecom innovation, through monopoly or through competition?

To preserve their monopoly, the Bells and their friends have resorted to nastiness and hysteria. Last week, George Gilder even blamed the 1996 Telecom Act for the implosion of the .com industry (the pricking of a bubble that Mr. Gilder himself helped puff up). It's nonsense to think the fall of Pets.com and its sock puppet were due to telecom policy.

In last year's FCC decision, the Bells got exactly the national broadband policy they wanted. The FCC specifically exempted their investment in broadband fiber and Internet protocol technology from the unbundling rules -- and Mr. Martin, the Bush-appointed FCC commissioner and favorite Bell punching bag -- voted for that exemption.

It's a shame the Bells have now chosen to trash the White House on the brink of anelection.Consumers, whose phone bills have dropped through competition, are the big winners so far. To protect them from a runaway legal decision and to continue its policy of letting the FCC decide key telecom issues, the administration should appeal last week's decision to the Supreme Court.

James K. Glassman is a resident fellow at the American Enterprise Institute.