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Regulating Telecommunications is Crucial
An editorial by Tony DiStefano, Chairman and Chief Executive officer of Arrival Communications.
From the October 21, 2005 edition of The Business Journal (thebusinessjournal.com)
Much has been said and written about the impending mergers between SBC and AT&T on the one hand and Verizon and MCI on the other. Generally, the case for the mergers centers on global competition and infrastructure investment. The case against the mergers has to do with job cuts and the rich getting richer. I would like to offer a more local perspective, brought to you by the CEO of a company headquartered in the Central Valley. I’m neither for nor against these mergers. I think that they are regrettable, but in some ways are inevitable given recent decisions made by the FCC and the courts as the 1996 Telecommunications Act approaches its tenth anniversary. I do, however, think these mergers will harm businesses throughout the Central Valley if they are allowed to take place unconditionally. The California Public Utilities Commission has the right to impose conditions to these mergers and I think it is vital that they do so.
The process for determining wholesale access rates (i.e., the prices paid for access) under the 1996 Telecommunications Act is mind-numbingly complex and is administered by the various state PUCs.
Historically, as in the recently completed California wholesale rate proceeding, the suppliers square off against the customers to produce evidence, experts and testimony in a process which drags on for years and which costs tens of millions of dollars. For example, in the wholesale rate proceeding which concluded on September 23 of last year, AT&T and MCI, the two largest wholesale customers in the state, fought tooth and nail against SBC to argue their case before the CPUC.
The AT&T/SBC and MCI/Verizon mergers will affect competition in two ways. First, there will be fewer choices as a direct result of MCI and AT&T being absorbed by Verizon and SBC. Second, the remaining competitive carriers do not have a fraction of the resources required to fight these immense regulatory battles. Without the likes of AT&T and MCI alongside them, they stand to get out-muscled in the lengthy, costly proceedings currently required to establish wholesale rates in markets where there are no competitive alternatives for wholesale access.
The cost to businesses in the Central Valley is a very real one. Businesses in these markets have few competitive telecommunications providers available for their voice and data needs. Cable is not an option, nor is wireless, VOIP or satellite. Competitive carriers are a very real option—so long as they have continued wholesale access without crushing regulatory requirements.
These mergers present an opportunity for a solution. The CPUC should adopt price-cap regulation for wholesale rates (as have been in place for retail telephone rates since 1989) as a condition to the approval of the AT&T/SBC and MCI/Verizon mergers. This position has been supported by multiple advocates who have filed merger briefs with the CPUC. This type of solution would eliminate the need for costly, uncertain proceedings and mitigate the loss of AT&T and MCI as the two largest wholesale customers in the state.
The Valley's small and medium-sized businesses face tough competition every day and telecommunications is a vital key to their success. The CPUC should carefully consider the important contribution these businesses make to California’s economy as it weighs its response to these mergers.
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