Bills may stymie competition

By Jerry Howe

One of the first pieces of legislation introduced in the Missouri Legislature this session is supposed to enhance the development of high-speed Internet access. But, in fact, if history and economic theory are any guide, the legislation will have the opposite effect.

The proposed legislation goes well beyond high-speed Internet service and will dramatically and negatively affect the entire telecommunications industry in Missouri.

House Bill 142 and Senate Bill 221 propose to roll back some of the key parts of the Telecommunications Act of 1996 by allowing SBC (formerly Southwestern Bell) to stop unbundling parts of the local regulated monopoly network that were opened to competition in 1996.

So what is unbundling? And how can it be so important to the advancement of a high-speed telecommunications infrastructure?

To understand the importance of unbundling, it is first necessary to understand that bundling is a very lethal weapon in the hands of a monopoly business and can be used to stifle competition and eliminate the consumer's right to choose.

SBC has a long history of bundling as many services as possible into its local telephone monopoly for as long as the law would allow. That monopoly control was eliminated only after long and bitter legal battles with the government, which was trying to foster competition.

The first significant win in unbundling the Bell monopoly came with the deregulation of telephone equipment. Prior to 1968, Bell forced its customers to rent telephones with their local monopoly service. Once the public won the court battle in the Carterphone case, the competitive telephone equipment market was born. The result is a highly competitive industry today that allows a consumer to walk into any retail outlet and purchase a telephone for as low as $9.99.

Similarly in 1982, again after a long legal battle, the Department of Justice and the Bell system agreed to unbundle long-distance service from the local telephone monopoly. AT&T's interstate long-distance business was separated from the local Bell telephone monopolies. The impact on the long-distance industry and the economy has been astounding.

In 1984, the average rate for an interstate/international long-distance call was 32 cents, and AT&T's market share was 90 percent. Today, as a result of the unbundling of Bell's long-distance business from the local telephone monopoly, AT&T's market share has fallen to 38 percent as competition has flourished and has driven down the price of an interstate/international long distance call to 12 cents.

The impact on economic development resulting from these changes has been even more stunning, driven by the jobs created by the 900 new companies that entered the long-distance industry. This more competitive environment brought new services at lower prices that drove the gargantuan increase in annual long-distance minutes to 540 billion minutes in 2001 from just under 150 billion in 1984.

It is worth noting that the 1996 Telecommunications Act allowed Southwestern Bell back into the interstate long-distance business when, and if, they successfully opened the local monopoly telephone networks to competitors. After six long years, Southwestern Bell was authorized to offer interstate long-distance service in Missouri. Now, just six months later, legislators are debating the retraction of some of the pro-competitive conditions that were necessary to allow Bell's re-entry into long distance.

To think that a re-bundling of the high-speed elements of the local telephone monopoly network will have a favorable impact on the development of an industry certainly runs contrary to history and basic economic theory. Passage of these bills is not in the best interest of Missouri citizens. SBC will continue to employ fewer and fewer Missourians, and the economic development generated by the new competition will be lost.

Jerry Howe is CEO of Big River Telephone Co. based in Cape Girardeau.