Last week the Federal Communications Commission approved Bell Atlantic's application to provide long-distance service to customers in New York state -- the first time it has ever granted such permission to a Bell Operating Company. Pundits are busy claiming that the FCC's decisions means (1) lower long- distance rates in New York and substantially higher profits for Bell Atlantic, (2) a return to the good old days of Ma Bell and (3) a triumph for "managed" competition. None of these are likely to be true:
-- Profits and prices won't change substantially. Long-distance telecom services are competitive in New York and around the nation even without Bell Atlantic's participation. Hundreds of companies are already in the market, and except for the Bell Operating Companies, there are no barriers to entry.
Until recent years, consumers paid several dimes and nickels for every minute of long-distance usage. Today, consumers pay only a nickel a minute for the same call. The actual cost of providing long-distance usage is substantially less.
Prices have fallen, and will continue to fall, not because of the entry of one more corporate competitor, but because of competitive pressures to remove distorting regulatory fees on long-distance services, euphemistically labeled "access charges." Long-distance customers do not pay these charges to local telephone companies for the trivial incremental cost of a phone call. Rather, they pay for the substantial fixed costs of phone service generally. Why should long-distance customers pay for costs they do not incur? They pay for them only because most consumers have no current alternative.
The Internet and Internet telephony are rapidly providing means for consumers to make long-distance calls with no usage-sensitive charges. These Internet services are driving down the prices of long-distance services, with or without Bell Atlantic. It stands to reason that if long-distance services are already competitive, Bell Atlantic won't capture windfall profits by entering this market.
Given the enthusiasm with which Bell Atlantic and the other Bell Operating Companies (SBC, BellSouth and U S West) have pursued approval from the FCC to enter long-distance, these companies must think they can make a profit from these services. Bell Atlantic will naturally capture some of the market, and there may well be some profits from exploiting synergies with existing services. But don't expect Bell Atlantic to capture most of the market, or to be wildly profitable as a result of long-distance entry.
-- Ma Bell is still dead. To hear some pundits tell it, one would believe that in the old days consumers could get any and all telecommunications services from one company and that consumers will now, for the first time since Ma Bell's demise in 1984, be reintroduced to one-stop shopping. Poppycock.
The good old days weren't so good. Today there are hundreds of services that were not dreamed of when Ma Bell lived, and no company -- not even Bell Atlantic -- can conceivably offer everything. Many companies already offer both local and long-distance service. GTE, Sprint and hundreds of smaller local companies have offered long-distance services for years. But, with few exceptions, the long-distance affiliates of the local companies do not dominate local markets, and there is no reason to expect Bell Atlantic to dominate long- distance service in New York. Nor have the local companies currently providing long-distance service been more profitable than the larger Bell Operating Companies that have been prevented by the FCC from offering these same long- distance services.
-- Bell Atlantic's entry into long-distance does not mean the FCC is successful at "managing" competition. All levels of American government have for generations stifled competition in many lines of business. For example, a mere four years ago, it was illegal for practically all long-distance companies to offer local service (or any other service), and vice versa. To apply to offer any service required hundreds of lawyers, scores of lobbyists and the patience of Job. Government agencies erected elaborate decades-long games of "Mother, May I?" for would-be telecommunications providers to which the ultimate answer was as likely as not to be "No." Most telecommunications property was operated only with government approval, and contracts between willing buyers and sellers were strictly prohibited without prior government consent.
The 1996 Telecom Act wiped away most legal barriers to entering all telecommunications markets for both new and incumbent companies. It relaxed many forms of price regulation, and required the FCC to weed out bad regulations every two years. The centerpiece of the law is its reliance on private contracts, rather than government edicts, to determine the relationships between businesses.
Hundreds of new companies raised tens of billions of dollars to enter new markets. Incumbent companies, including Bell Atlantic, raised even more money to enter new markets. In New York state today, more than 100 companies offer some form of local service, hundreds of others offer long-distance service, and many others offer varied data, video and other services that defy labels. Four years ago, their offerings would have been illegal. Today they simply happen through normal market mechanisms, with minimal if any oversight from the FCC.
Bell Atlantic is the only company that needed specific FCC permission to enter a particular New York telecom market. And the decision was pretty automatic once certain criteria of the 1996 law had been met. The FCC has followed the law in the case of Bell Atlantic, but not in other cases -- for example, in attaching unlawful conditions to Ameritech's transfer of its licenses to SBC.
The commission and its "Mother, May I?" game are becoming increasingly irrelevant in defining the structure of telecom markets. The FCC has many regulatory decisions to make in the future, and if it won't fully implement the deregulatory aspects of the 1996 Telecom Act, American consumers have a powerful new ally: Internet-based services. These largely unregulated services threaten to sweep away generations of archaic telecommunications regulation. Good riddance.