FOOLS RUSH IN

A group of leading economists urged the FCC last week to deregulate broadband in order to spur economic growth. Speaking for the group, Alfred Kahn, professor emeritus at Cornell University and economic adviser to the Carter administration, said forcing companies to lease facilities to competitors at prices based on hypothetical costs rather than actual costs is fatal to innovation.

“Investors must see the prospect of enjoying the fruits of their successful innovation if they're going to take the risks,” Kahn said. It would be wise to give Kahn's viewpoint serious consideration, given his well-rounded perspective. He played a significant role in the deregulation of the airline, railroad and trucking industries, has chaired the New York Public Services Commission and has done consulting work for Verizon Communications.

But here's a reality check for Professor Kahn: It might be some time before the Bells embark on significant buildouts of their data infrastructures, even if they get the regulatory relief they seek. They are feeling pressure from too much debt and stagnant revenues, and these pressures won't be relieved until their customers begin spending again.

That won't occur for several months until confidence in the economic recovery firmly takes root. And while everyone waits for the Bell companies to get off the dime and build out in this new unregulated world, competitive carriers wither and die because they can no longer access the facilities they need to provision their own broadband data services.

Deregulation doesn't seem to make much sense at this point — nor does forcing the Bell companies to make new data facilities available at TELRIC prices. The answer, then, is not to deregulate broadband and forever eliminate the ability of competitors to access incumbent facilities. It is to adjust the pricing structure so that it is fair to both sides.

That's what the FCC is trying to do via its wireline NPRM, in which it suggests that new data facilities built by incumbent carriers be leased to competitors at “commercially reasonable” rates. Though it is unclear just what “commercially reasonable” means, it's safe to say the definition will land in the middle between TELRIC and the actual costs of the leased elements.

This is a sound and balanced approach. The Bell companies had a century to build out their networks under monopoly conditions; competitors have had six years in a cutthroat environment. They should be given more time to establish themselves. But they should pay commercially reasonable rates for what they lease, which would allow incumbents some return on their investment — though not the 50% to 75% suggested by Kahn — and that should help to keep shareholders off their backs. And if competitors can't afford those rates, they should get out of the game.