Dorman Calls for Strong Move Away From Regulation

“The Telecom Act over its 9-year period has been probably the most litigated piece of legislation we've ever had and we now have seen the consequences of that regulatory world on the participants,” Dorman said. He spoke Thurs. at a seminar sponsored by the American Enterprise Institute-Brookings Institution Joint Center for Regulatory Studies. “Whatever gets done should be with as a careful eye toward as little regulation as can be possibly justified.”

Dorman said for a firm like AT&T state regulation is “mind-numbing...Does it make any sense that we have 3 intermodal methods -- wireless, cable, and traditional wireline - competing as substitutes under 3 completely different regulatory regimes?” Commenting on AT&T’s recent, turbulent history, Dorman conceded it will be the stuff of business school case studies for some time. AT&T grew major cable and wireless businesses, only to sell them off, culminating in the sale of the rest of the company to SBC, announced in Jan.

AT&T “came apart simply because of financial leverage reasons,” he said. “We had $65 billion of debt; $32 billion of it was commercial paper due within a year. With a double A credit rating, that’s not a big deal. You can roll it over or turn it out. But as the market turned and the bubble burst AT&T’s ability to maintain that double A credit rating was under pressure.”

Dorman said AT&T management thought with luck it could keep the firm afloat. “If we are unlucky we could end up in a situation where we are facing a very stiff liquidity crisis and we could lose control of the assets. We did not want to put ourselves in that kind of position.” Dorman said unlike some peers -- he singled out WorldCom and Global Crossing -- AT&T played by the rules.

On the business front, Dorman said as its merger with SBC progresses, AT&T remains committed to VoIP offering CallVantage. Dorman said he uses the service from hotels when traveling. Though CallVantage is sold in only 5 countries, he said it has customers in about 25. CallVantage will be “a powerful addition” to the combined company’s portfolio, he said.

Dorman said AT&T was “very disappointed” with the FCC’s Feb decision to hold the company responsible for hundreds of millions of dollars in universal service charges in the calling card order. “This was a service that has been an unregulated service for 10 years, under forbearance. We filed every year,” he said. “Who did this serve? Who did this help? It certainly didn’t help the users of this service.” He reiterated that AT&T will appeal the decision in federal court. -- Howard Buskirk

Scholars Urge Retaining, but Improving, FCC Functions

Congress should keep the FCC as the chief telecom regulator for at least a decade, a pair of lawyers told seminar attendees. As Congress considers rewriting the Telecom Act, the only real choice is between the FCC and the antitrust courts, and the FCC is better positioned to oversee the industry, said attorney Jonathan Nuechterlein and Philip Weiser, a U. of Colo. assoc. professor of law & telecom.

In a paper outlined at the seminar, Nuechterlein and Weiser tilted in favor of the FCC because it has the expertise and can take a long-term approach, offering investors more certainty. Courts take a piecemeal approach, said Nuechterlein. However, FCC decisions would improve if Congress made regulators hew to basic antitrust principles, he said. For example, antitrust principles ought to apply to the debate on regulating broadband platforms ,to prevent discrimination against applications providers such as VoIP, Nuechterlein said.

Manhattan Institute fellow Thomas Hazlett said the courts offer an advantage because antitrust law is “pulled in fewer directions.” He said he supports regulators’ adopting an antitrust framework but isn’t sure it can be done. “It’s easy to say get rid of the FCC but I think that would be a disaster,” said Weiser. Nuechterlein said moving from 4 commissioners to one could increase “predictability” for investors; so would reducing state’s role and single-agency review of mergers instead of having both the FCC and the Justice Dept. weigh in.

In another paper reviewed at the seminar, Hazlett said Telecom Act network sharing rules impede development of technologies such as DSL instead of encouraging competitive entry. With the rules pared, DSL is growing much more quickly, he said. Hazlett said competitive networks develop best not by opening existing networks to multiple operators but by encouraging development of rival infrastructure. Other areas for improvement, said Hazlett: (1) There should be assurances that VoIP will be mostly free of regulation. (2) More spectrum is needed for to develop a wireless broadband alternative. The U.S. is “under-spectrumed,” he said.

“Whether or not you agree that the Telecom Act was good or bad,” there may be more industry certainty now than if Congress rewrites the Act and introduces “8 more years of litigation,” warned Gregory Rosston, deputy dir. of the Stanford U. Institute for Economic Policy Research. Nonetheless, a new Act could make a difference, such as by giving the federal govt. “clear jurisdiction over interconnection,” he said. Rosston called for a “better standard” to guide the FCC, replacing the “vague public interest standard” -- such as requiring the FCC to “maximize consumer welfare,” a recommendation Hazlett said he endorsed.

AEI fellow Scott Wallsten warned against being too specific in a Telecom rewrite. He said during the rewrite that produced the 1996 Act, conferees talked of adding a section requiring universal access to now-outdated ISDN technology. “Today we have no idea where the technology will be in 2014,” he said.

Although not discussed at the seminar, the AEI- Brookings Center offered information about a study by Rosston and Ex-FCC Chmn. Reed Hundt during creation of an organization to guide communications law overhauls. U.S. communications policy “does not state clearly its own goals, yet applies regulations that greatly affect outcomes,” the authors said. A better policy would be to “substitute markets for regulation... while continuing to be conscious of specific market power concerns and obtaining efficiently social benefits.” Hundt and Rosston said the Administration and Congress should create a “bipartisan and independent commission” to recommend policy changes by mid-2005.

Among ways the paper suggested to improve communications policy: (1) Retail price deregulation “where multi-firm competition is available.” (2) “A neutral tax policy that does not distort consumer choice or competition.” (3) “Increased availability of spectrum.” (4) An outright decision to maintain or disband the unbundling requirements. (5) “Application of Title 2 regulation and forbearance unless competitive problems arise.” (6) “Wholesale” revamping of universal service programs. (7) A “clear division of federal, state and local jurisdictions” with federal regulators setting interconnection and openness policies, state regulators in charge of rights of way.

The Nuechterlein-Weiser and the Hazlett papers are at www.aei-brookings.org and the Hundt-Rosston paper at http://siepr.stanford.edu/papers/pdf/04-07.html