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3.0 out of 5 stars
Not Telecom For Dummies, That's For Sure, September 20, 2006
This review is from: Competition and Chaos: U.S. Telecommunications Since the 1996 Telecom Act (Paperback)
While there can be little doubt the book <u> Competition and Chaos </u> is a pro-telecom white paper, albeit an unusually technical one, it makes a worthy case for telecom deregulation in general by pointing out the flaws in our current approach. My only problems with the book are a discussion of wireline shrinkage that seems incomplete, and the author's problematic critique of net neutrality.
In the interest of full disclosure, I admit to working for a telco, one named frequently in the book. So at least to some degree I should be considered a friendly reviewer, in that I agree with his thesis and hope the regulatory environment can sort itself out sometime before I retire. On the other hand, I'm not in a position to reap a huge windfall if such a change were to come to pass, which is another way of saying I'm firmly (or not) embedded in the bowels of lower management. One might say I want to develop a stronger argument, which I believe is necessary to the eventual success of telecom reform.
The prospective reader should be reminded that the book is a economic analysis of recent political policy, written by an economist, so it has a good measure of economic jargon (such as price elasticity) and some telecom jargon (such as UNE-P). Some of the jargon is explained, others not so much. Having read a few white papers in the past few years, it was refreshing to see one with actual equations instead of opinion polls. And of course, it has a plethora of citations, as would be expected of a scholar. I had fun researching the meaning of the Herfindahl-Hirschman index of concentration - rather like hunting for Easter eggs.
Now on to the areas suitable for improvement.
One analysis that could have stood an opinion poll or two is the author's treatment of the overall decline in wireline voice where the author guesses the reason is because of broadband and/or wireless cannibalization (the term is appropriate, if a bit loose, for wireless as most of them are affiliated with the telcos). That is probably true, but why? Though the book is an economic treatment, not a marketing study, economics is the study of incentives, and the motives behind the migration may be less obvious than the author believes.
But my quibble with information gaps in the wireline voice problem doesn't compare with the issues I have with the author's treatment of network ownership / network neutrality. His strident property-rights argument and curious analogy to automobiles are far from convincing; on the contrary, they may provide net neutrality partisans with more mojo in their quest to raise the specter of evil telcos murdering the "free" Internet such as many have accused Microsoft of doing to the PC. I refer the reader to the last paragraph on p. 125, which reads in part, "[Nondiscriminatory access] would prevent network operators from developing their own content and denying access to competitive applications and content [emphasis added]." So in effect, the author argues for the transformation of netops from utilities to broadcasters.
Rhetorical question -- can anyone tell me why the Internet became so popular? Was it so the cheapskates of the world could save money on stamps? Was it so people unlucky enough to live in sexually inhibited areas could have access to porn? Maybe. But a broader way of describing the motivator is the word choice, i.e. less at the mercy of broadcasters' needs. And an Internet where only netop-developed or approved content can roam will be a world of fewer, not more, choices.
What's funny is that I support property rights, and furthermore, I've yet to hear of any plans to replace eBay with "BellBay". But one cannot help but suspect the worst, especially in light of recent revelations by some telcos to "reclaim" the DSL Universal Service Fee, which are supposed to be regulatory "pass-throughs".
I find more troublesome the author's car analogy in the same paragraph. It reads, "In an earlier era, this would have been similar to requiring Henry Ford, who had more than 60 percent of the U.S. automobile market in the early 1920s, from changing the design of his Ford platforms to adopt new technologies and deny his competitors the ability to install their components on his cars..."
While it is easy to imagine the phone network -- or any network -- as a platform, a more accurate analogy would have been to say, "If Ford owned 60 percent of the road miles, `road neutrality' legislation would have required him to allow non-Ford automobiles to drive on his roads, without either an intentional performance or financial penalty." The problem with such an analogy is obvious - it would not have merely undermined the network ownership argument, but obliterated it completely.
What is certain that if a person generally supportive of telecom reform and of modest skill in rhetoric can spot weaknesses such as described, no doubt the conspiracy theorists and populists can as well.
Going back to the utility-broadcaster comparison for a moment, in the final chapter, the author argues a case for vertical integration as a means to ensure the financial returns sufficient to justify new investment. Merely pushing more bits faster will no longer appease the financial markets. But one must wonder, how much content a local TV station, a major network, or a cable company develops in-house? Most content is developed by production companies and sold to the highest bidder. And while the "free" Internet has allowed a lot of content to blossom without additional benefit to the netops, it has also seen a lot more failures that haven't cost the netops a penny -- other than maybe uncollected service charges. Content development is at least as risky as network development, especially, as the author claims, if providers have limited market power; how many new TV shows last beyond the first season or two?
The author has presented a sober study of the trends developing in telecom since the passage of Telecom '96. His thesis that political meddling in the telecom marketplace has done more harm than good I find laudable, and most of the chapters present conclusions which are at least plausible. His training as an economist, and the worldview inherent in such training, lends weight to his analysis but limits the scope of discussion and therefore its' usefulness to the ongoing political debate. After all, if macroeconomics were everything, would we have a minimum wage? Finally, his argument for network ownership and supporting analogy could use refinement. He may have another crack at it if Congress passes COPE '06 or some variant thereof.
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5.0 out of 5 stars
The Telecom Act of '96: What Went Wrong..., October 2, 2009
This review is from: Competition and Chaos: U.S. Telecommunications Since the 1996 Telecom Act (Paperback)
"Competition and Chaos" is a valuable resource for anyone interested in telecommunications policy--or technology policy, in general. It details important aspects of the implementation of the Telecommunications Act of 1996, spanning such local telephone services, long-distance competition, cable, wireless and broadband services. Economist Robert Crandall explains much (but not all) of what went wrong during the first several years of the Telecom Act of '96.
In particular, the describes much of the fallout surrounding the Federal Communications Commission's (FCC) implementation of "unbundling rules" for wireline incumbent local exchange carriers (ILECs). Because FCC rules required ILECs to lease their facilities at a low wholesale rate, competitors took advantage of those low lease rates to re-sell services to customers. Rather than spark a market of intense facilities-based competition, competitive local exchange carriers (CLECs) that leased ILEC unbundled network elements instead focused their resouces on necessary but necessarily expensive advertising campaigns and regulatory and litigation efforts. Unfortuantely, the forced-sharing rules stifled ILEC investment. Why (ILEC) invest more in building new facilities that one's own competitors have a legal right to lease at bargain prices? And why (CLEC) undertake the costly efforts to build out new wireline facilities when regulated lease rates are so inviting? It's understandable why ILECs and CLECs responded as they did. Public policy choices have economic consequences. And incentives matter.
Contra policymakers' apparent expectations, facilities-based competition in voice, video, and data significantly developed by cable companies entry into the voice marketplace and through the upgrades of their networks to deliver high-speed Internet services. Meanwhile, wireline moved into video and (unbundling rule impediments aside) high-speed Internet with fiber-optic upgrades to their systems.
Significantly, the book details the arrival of new entrants and competition in the long-distance business. As the author shows, however, the FCC took a long time in approving regional bell operating companies (RBOCs) entry, to the detriment of consumer welfare.
Crandall even suggests that misguided regulatory policies stemming from the Telecom Act of 1996 that promised genuine competition--but really emphasized government-managed competition--contributed to the telecom crash of the early '00s. Once the FCC started a retreat over its overly-aggressive unbundling regulatory regime (thanks in part to federal court rulings), Crandall shows how investment in wireline and broadband investment surged.
The book's chapter focusing on wireless shows how that industry--which was largely overlooked in the Telecom Act of '96. Wireless competition is aptly described as a blessing of a marketplace constrained by little regulation. (Let's hope it stays that way.)
As this short review makes plain, there is plenty of telecom jargon in the book. There are also more complicated economic figures and calculations. This is all but unavoidable. But this shouldn't keep one from benefitting from the book's insights. "Competition and Chaos" is an informative read with some meaningful lessons.
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