Wednesday, December 06, 2006

GAO: FCC Policies Producing Anti-Competitive Broadband

"The Government Accountability Office (GAO) released a report Thursday suggesting that the Federal Communications Commission (FCC) 's deregulation of business-class high-speed data business hasn't led to increased competition and lower prices in many markets."
That's what Light Reading says about a recent report by the independent investigatory arm of the federal government.

The Gist
The issue at hand is that 6 percent or fewer of potentially lucrative, commercial buildings in densely populated areas that could be sold large amounts of bandwidth actually have anything that looks even vaugely like competition. The GAO is say that the FCC's methods for determining when competition exists lead it to "deregulate" --remove price caps-- when effective competition does not, in fact, exist.

The best evidence that the GAO is right, and the FCC wrong, is that prices ar actually rising faster and higher in those areas where competition and deregulation has occurred than in those where regulation has remained in place and there is evidence that in those areas competition has actually decreased since deregulation occured.

The implication is that the FCC's actions, whatever its intent, is strengthening monopolies and that prices are rising as a result.

The Technical Problem: Method
The GAO report "FCC Needs to Improve Its Ability to Monitor and Determine the Extent of Competition in Dedicated Access Services" only says, as the title indicates, the FCC methods for determining when enough competition has set in to allow "deregulation" to begin is wrong. It yields a false belief that competition exists and provides a poor basis for removing protections that once held down prices to ones that produced only a fair profit. Decisions made on this basis are exposing businesses to monopoly pricing.

The Basic Problem: Ideology
But the FCC's mistake is not merely a technical one: it is ideological; it is faith-based, not reality-based. The FCC has, since the Clinton administration, been populated by those that hold, as an article of faith, that monopolies don't exist unless they are created by the government. Believing this, they think that the solution to all problems caused by monopolies is deregulation.

They are wrong.

This finding is merely the latest in a long series of authoritive independent reports and common-sense observation that show that FCC policies based in their free market faith actually support monopolies rather than open them to competition. The trouble with this faith is, religious certainty aside, deregulation only works when regulation is hindering what would otherwise be a competitive marketplace.

What no one at the FCC (and too few special interest-dependent legislators) wants to admit is that not all markets are competitive. Some are natural monopolies. In a natural monopoly situation giving the monopoly free reign by deregulation inevitably worsens the problem. The FCC's misplaced faith has exposed us all to more, rather than less, monopolization.

Uncritical Free-Market Faith leads to Monopolies
The best evidence that the FCC's faith has failed the test of reality is the "new" AT&T. The reconsolidation of AT&T -- capturing BellSouth is the latest piece -- is being allowed by the FCC on the premise to disallow it would be to somehow regulate a free market entity. Trouble is, neither AT&T nor BellSouth are free-market companies. They don't currently have effective competition in their regional markets and their consolidation does nothing to ameliorate local monopoly abuses. It does create a long-haul data market with fewer players dominated by AT&T and Verizon. Those companies can use their local dominance to favor carriage on their own long haul systems and create competitive disadvantages for both long haul and local competitors--like LUS.

The field is littered with other, nearly as striking, examples of how the FCC's faith has lead it away from it public service purpose. Deregulation pushed competitors like EATel out of the resale local phone market and has not resulted in better services--instead it has lead to higher prices with no real alternatives for local wireline service. We've discussed cable prices earlier: the FCC declines to regulate these monopolies on the basis that they have do have satellite competition. But another GAO study shows that satellite competition that has not substantially effected cable prices--meaning that wireline cable is a separate market.

On the basis of the evidence we should be beginning to conclude that at least wireline (copper or fiber optics) telecommunications is a natural monopoly and, given that cold hard fact, that it should be regulated as such or converted into a public utility.

Until the FCC loses its naive faith in free market solutions to natural monopoly markets the best local communities can do is to start their on public telecommunications utilities. Like LUS' proposed telecomm utility.

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