MARKEY: INCUMBENTS REQUIRE TAX BREAKS TO START SPENDING

Rep. Edward Markey, D-Mass., supports tax incentives for carriers investing in high-speed data network deployments, particularly those targeted to rural or underserved areas. Testifying at last week's Senate Commerce Committee hearing on broadband and local telecommunications, Markey said he supports bills introduced by Sens. Ernest “Fritz” Hollings, D-S.C., and John “Jay” Rockefeller, D-W. Va.

Markey, one of the Telecom Act's authors, said although 85% of the country has access to at least one broadband provider, the masses haven't been convinced broadband is worth the cost.

“Right now, it's hard to identify the services that would justify the current cost structure,” Markey said. “Seventy-five dollars a month is a big additional cost for a family that's making $40,000 to $50,000 a year.”

One answer is to create a more robust set of services that would bring cost in balance with reward. The other is figuring out a way to get the cost down to $30 to $35 per month — still a premium compared with narrowband dial-up service, but affordable for most families. Increased competition is the way, he said.

“The more competition, the lower the price and the greater the innovation,” Markey said. “We saw it in long distance and cellular. We need the third, fourth and fifth competitor to enter the market.”

That appears to be what the FCC and Congress have in mind as they seek broadband parity between telephone, cable, satellite and wireless. But Markey cautioned that any approach that deregulates incumbent telcos would result in a duopoly between the Bells and the cable companies that would drive up rates and kill innovation.

“These are the companies that transformed the country. We have to make sure it is still possible for these companies to make a difference,” Markey said. “Fifteen years ago, regulation protected a little company called AOL, which the Bells were trying to put out of business. This is where we have to plant the flag.”

Others aren't convinced. No amount of money the government could generate through tax incentives would accelerate buildouts absent deregulation, said Michael Boland, senior vice president of regulatory affairs for Verizon Communications. He questioned why the government would consider such a plan when the private sector is willing to make its own investments.

“It wouldn't be a good use of taxpayer money,” Boland said. “That money would be better spent on areas of economic development that only tax credits can accomplish.”

Scott Cleland, president and CEO of Precursor Group, blamed the regulatory environment in a report issued last week. “Telecom is not even close to bottoming out,” he said. “Current regulations are powerfully anti-profit and anti-investment.”

One former Qwest executive, however, said regulation is being used as an excuse by carriers that are still afraid of cannibalizing T-1 revenues. “When they're talking about deploying DSL, it all comes down to economic analysis. The more DSL opens up to bypass the real cash cow, the less reason there is to buy T-1s.”