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On the verge of a telecom revolution
by James K. Glassman
Scripps Howard News Service


March 21, 2005

At long last, 21 years after a judge broke up Ma Bell, Americans are on the brink of getting the telecommunications they deserve.

Exactly which technologies will dominate in the next few years, I have no idea. Voice Over Internet (VoIP), wireless broadband, superfast DSL, satellite, cable telephony? If all goes well, the choice, finally, will be in the hands of consumers, rather than regulators, judges and legislators who left the job half-done. Americans will benefit from fierce competition among serious, well-funded companies and choose for themselves the best products at the lowest cost.

This is the way it should have been years ago. Now, thanks to four recent events, we're on the verge of a telecom revolution.

The most important of the four is the restructuring of the telecom industry through mergers. Last year, in a couple of big wireless deals, Cingular bought AT&T Wireless, and Sprint and Nextel combined.

But the key mergers are yet to come. On Jan. 31, SBC Communications, the original Southwestern Bell, said it would join AT&T, the largest long-distance carrier. The largest local Bell company, Verizon, is the front-runner in a race with Qwest to buy MCI, the former WorldCom.

Both the SBC-AT&T and Verizon-MCI deals are highly beneficial to individuals, businesses, government procurement - and to the American economy. Congress, which has already started nosing around, should stay out, and regulators should approve the mergers quickly.

The two robust national telecom firms that result will mean more choices, not fewer. For one thing, SBC-AT&T and Verizon-MCI will compete against each other - unlike in the past, when the Baby Bells stuck to their own regions and gobbled up monopoly rents. The new firms will also compete against reinvigorated cable companies, themselves the products of mergers. By the end of next year, for example, Comcast, which now offers TV and fast broadband access to the Internet, will be able to make local and long-distance telephone service available to all 40 million subscribers. Cablevision, Time Warner and Cox are already effectively bundling advanced phone services.

In addition, these larger companies will have competition from the stand-alone VoIP providers like Vonnage, from the new wireless powerhouses created by last year's mergers and from satellite communications firms. That's the free-for-all we need.

The second key event that has put us on the brink of a revolution was President Bush's decision last week to name Kevin Martin, the most able member of the Federal Communications Commission, as chairman. I was on Martin's side when he beat the outgoing chair, Michael Powell, on a critical rate issue. Martin and his allies were reversed by judges, and the administration, unwisely, refused to take the matter to the Supreme Court.

That's water under the bridge now, but Martin's performance showed he truly stands for vigorous competition - unlike Powell, who only talked a good game and then failed to build a consensus. Wise bets are on Martin to lead the FCC to decisions that will unleash the power of the VoIP platform, rationalize the mess called universal service and approve the two critical mergers.

The third event was the fraud conviction last week in a New York federal court of former WorldCom CEO Bernard Ebbers. He's the villain who faked billions in profits and created a base of false economics that contributed to the demise of other firms as well as a glut in bandwidth capacity that crippled an industry.

Just as the impending mergers and the elevation of Martin mark the end of an era of regulatory uncertainty, the conviction of Ebbers marks the end of a period of management hubris and irrationality.

The final event is the rise of new Internet-based technologies that will transform the old locally based telephone system into a true global telecom web that will make our lives richer and easier.

With the stage set, the revolution can happen quickly. Recall that, as recently as 1990, there were only 5 million wireless subscribers in the United States; today, 180 million.

Right now, we don't know precisely how the revolution will shake out, and that's the beauty of competitive capitalism. If the mergers go through - as they should - we'll be able to make our own choices, without the clumsy interventions of politicians, judges and bureaucrats that have, so far, kept the glorious telecom future from being today's reality.


James K. Glassman is a fellow at the American Enterprise Institute
and host of the Web site,
Distributed by Scripps Howard News Service


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