Academics: Telecom regulation has failed

Two former FCC staffers currently in the academic world said today during a lecture sponsored by Verizon Communications that the commission’s regulation of the wireline sector and its management of wireless spectrum have been ineffective dating back to the divestiture of AT&T in 1984.

Gerald Faulhaber, previously the FCC’s chief economist and now a public policy professor at the University of Pennsylvania’s Wharton School of Business, said FCC policies designed to force “recalcitrant” monopolies into accepting competition and embracing innovation had failed.

“It’s not for a lack of trying, but there has been a string of failures, with local loop unbundling just the latest,” Faulhaber said. “Competitive carriers control just 10% of wireline access lines, and most of those are in New York City.” The unfortunate byproduct of these policies is that the Bell companies have largely abandoned innovation, a stunning development given that Bell Labs once possessed one of the world’s greatest developmental capabilities. “The RBOCs have zero R&D capability today. Compare that to [Japan’s] NTT DoCoMo, which employs 6000 people in its research labs.”

Oddly, Faulhaber said he doesn’t believe that either the FCC or the RBOCs are against innovation. Rather, they are locked in a “sweaty embrace” of distrust that has paralyzed technology advances. Progress in telecom today is driven by lawyers and lobbyists, and not technologists, he added, a situation that must be reversed if the industry is to rebound. “If even half the money that is spent on lobbyists today were to be spent on R&D, the RBOCs would outspend Silicon Valley,” Faulhaber said.

Faulhaber said the Bells need an “exit strategy” from regulation, and that the “new wires, new rules” theorem that is manifested in the FCC’s recent decision to remove unbundling requirements from fiber and hybrid loops might provide such an escape hatch. “They have to clear a path and when they do, those companies will migrate to those areas,” he said. “Should that happen, the Bells might become interesting companies to do business with.”

Though agreeing with Faulhaber that the industry’s “whole research capability is collapsing” and that government in general is moving far too slowly in modernizing the regulatory process, Dave Farber, former chief technologist at the FCC and now a visiting professor at Carnegie Mellon University, cautioned that the Bell companies have a long history of false promises. “There have been too many promises broken in the past. Someone has to find a way to put people’s feet to the coals,” Farber said.

He added that local municipalities and their policies governing rights-of-way management – which tend to protect entrenched incumbents – have had an equally chilling effect on local competition. “They make it difficult for anybody who’s not a utility, cable company or telco to come in,” Farber said.

Faulhaber threw water on two hot markets that many carriers are looking towards to gain a competitive edge: Web-based video and Wi-Fi. “The Web is a poor tool for emulating television,” he said. “It is a much better tool for achieving interactivity.”

Regarding Wi-Fi, Faulhaber cautioned that carriers “shouldn’t get their undies in a bunch” over the technology, because it “only solves the last 100 feet problem, not the last mile problem.” He also said he is still waiting to see a workable business plan. Another problem is that even though Wi-Fi carriers purport to provide 10 MB/s or better connection speeds, they still must connect to the Internet via a T-1 line “if they’re lucky.”

“It doesn’t matter if you can run 10 megs if the connecting pipe has a 700 kb/s limit,” he said.

For these reasons Faulhaber predicted that Wi-Fi won’t be able to generate enough revenues on its own to be a stand-alone service, but would be an important feature set within a larger offering.