Carrier Evolution

The proposal by Verizon to acquire virtually all of the wireless spectrum owned by cable companies and enter into collaborative agreements whereby the firms would cross-market each other’s services and jointly develop shared technology, is another key moment in the sad history of the failure of competition in local service under the 1996 Act, Consumer Federation of America argues.

Many within the U.S. competitive local exchange carrier business, or many who were in that business, came to that conclusion years ago. But there is a huge contradiction here. Nobody actually believes that consumers or businesses have less choice, fewer options or better applications than before the passage of the Telecommunications Act.

The simple reason is that the explosion of innovation we have seen over the past decade and a half has occurred in the mobile realm and the Internet realm.

Nor, it must be said, might cable operators or many hundreds of rural and independent telcos deem the Telecom Act to have failed. In fact, cable operator presence and importance in the voice and data access businesses are in many ways the direct fruit of the Telecom Act.

So it might be fairer to say that although many would-be independent competitors have not prospered, the Telecom Act enabled cable operators and many independent telcos to reap the advantages. In fact, you might argue, the reason some firms, such as Windstream and Frontier Communications, now have such large and dominant business customer revenue streams is precisely because of the Telecommunications Act.

It was the 1996 telecommunications law that allowed such firms to expand into the territories served by other incumbent local exchange carriers, and to do so by buying the assets of other business-focused CLECs that used the Act to get into business.

Nor is it reasonable to ignore the fundamental shift in industry dynamics since 1996. Today, it is all manner of over the top Internet-based services which are diminishing the revenue and strategic options of telcos, not “other telcos,” with the obvious exception of cable companies and CLECs owned by ILECs.

The CFA argument is simple: cable operators and Verizon are the overwhelming dominant incumbents in the vast areas where Verizon sells wireline service. So where Verizon and cable companies cooperate, the local market has been reduced to two dominant suppliers who might not compete on a “facilities basis.”

Verizon and the cable companies have proposed to declare a competitive cease fire between the two broadband wireline networks. Verizon will not extend it high capacity broadband network, rather it will market cable’s network.

Cable will not enter the wireless market or use smaller wireless carriers to build a bundle of wireless and wireline service, it will use Verizon’s wireless service, CFA argues.

In fairness, there are just a couple of metro areas where that is a truly important issue: Boston and Baltimore. Verizon has a relatively limited fixed network footprint in most parts of the United States, and already has finished its FiOS upgrades in all other of its metro areas.

One surely can make the argument that Boston, Baltimore and many rural areas are the places where it might be plausibly argued Verizon will not have the same incentives to upgrade its networks.

But equally plausibly, one might argue that Verizon and other fixed network telcos have diminishing reasons to invest in fixed network infrastructure everywhere, for the simple reason that the profits from doing so are increasingly questionable.

Some might well argue the Telecom Act of 1996 has failed. Others would say it has succeeded, as much as it could have, given all the other changes in communications and computing since 1996.