25 years after the Bell breakup….price stability needed

We’re 25 years out from the Modification of Final Judgment that broke up the Bell System, and there’s been a lot of recapitulation of that time. Not surprisingly, most of it’s not particularly insightful. The truth is just too complicated and not very exciting, apparently.

The process began with realization that competitive long-distance providers were never going to be fully competitive as long as AT&T had local exchange control, and so the MFJ broke that monopoly, which was OK in a policy sense. It did reduce long-distance pricing steadily. It also created an undesirable stratification of the industry that separated access cost from interexchange revenue and so stalled broadband deployment.

The Telecom Act of 1996 was designed to again reorient the industry to create vertical competitors and to keep from restarting the old Bell monopoly. Lawmakers imposed a wholesale requirement on the RBOCs that shared their access with the IXCs. But long-distance pricing was doomed and so only increased subsidies could have kept the IXCs alive, and that was not the goal of the Act. Neither was the CLEC craze that venture capitalists started.

The IXCs got bought, the CLECs died, and the federal courts finally clarified things—by which time it was all moot. In this decade, the Powell policy of cross-modal competition between cable and RBOC was the only sensible play all along, and it’s actually working pretty well. Those who lament the death of the small CLEC or the lack of hundreds of healthy competitors should just take a look at the ROI on access investment; it’s poisonous for any new entrant.

Consolidation is already going on in telecom worldwide, and that’s a sure indicator that the problem isn’t a lack of competition, it’s a lack of price stability. The past should be a lesson for us: Regulatory policy can’t easily cope with fast, fundamental changes.