Hollings: Bells are playing a 'sordid game'

Sen. Ernest “Fritz” Hollings, D-S.C., today used a Senate Commerce Committee hearing on the financial turmoil afflicting the telecom industry to lash out at the Bell companies, which he accused of using “every gimmick in the book” to extend their monopolies.

Hollings was reacting to FCC Chairman Michael Powell’s assertion that much of the blame for the current turmoil rests with an overabundance of competitors that rushed into the market shortly after the passage of the Telecommunications Act of 1996, companies that were flush with “cheap capital.”

Powell today said in his testimony before the committee that telecommunications companies throughout the world amassed “a staggering amount of debt” in building nearly identical networks to serve demand that never materialized. When these companies realized that there wouldn’t be enough revenue to pay down debt and generate a return on investment, the results “were devastating,” Powell said.

“As some telecom companies began to fail and enter bankruptcy, others resorted to fraud and deception to mask these core fundamental problems facing their companies,” Powell said. “Some went so far in their deception to not only mask failure, but to inflate, artificially, revenue growth to make it look like the dream was real.”

However, Hollings countered by saying there wasn’t enough competition, largely because the Bells have worked overtime to maintain and extend their monopolies.

“They began to question a bill that their own lawyers wrote,” Hollings said. “They have kept things tied up in the courts, and six years later they still have 90% of the last mile.”

Hollings added that the Bells simply “pass their fines along to the rate payers.” He pointed to the ludicrousness of fines that total in the millions when the RBOCs produce revenues in the billions.

“They are playing a sordid game,” he said.

However, Hollings also said the cable industry is equally guilty and said the various bills floating through Congress purporting to achieve intermodal parity would do nothing more than extend the monopolies of both.

“The only reason we haven’t re-regulated cable – and maybe the next Congress will – is because that’s been the only competition to the Bell companies on getting us broadband,” Hollings said. “The FCC should push forward with competition. Don’t let the demise of telecommunications be used to extend their monopolies.”

Sen. Byron Dorgan, D-N.D., chimed in, criticizing Qwest for deploying DSL service to just four of its two dozen exchanges in the state, but finding the time and resources to make investments in 27 countries. Dorgan said he “gets heartburn” when he listens to Powell say that he believes that market-driven solutions are the best approach to curing telecom’s woes.

“I have great faith in the market. I have studied economics, and I have taught economics,” Dorgan said. "But I am a firm believer that in many instances you must have effective regulation, because if you don’t you have perversion of the market.”

While he said that many factors have contributed to telecom’s meltdown, he also said, “I think we have seen federal agencies that have not done their job in their oversight role.”

Powell defended himself and the commission, pointing out that the current commission has entered into more enforcement actions than any previous commission and reminding the committee that he has called for greater authority to punish wrongdoers that violate merger conditions or the competition provisions of the Telecom Act. He added that he was faithful to Congress’s objectives as defined by the act but said too much has been left to the FCC’s interpretation and that the commission “often struggles to find a balance.”

“I make no apologies for believing in the importance of market principles and economics, but I also think I have been widely misperceived as someone who does not believe in regulation. I wouldn’t be able to do the job I’m doing if I were a complete Libertarian,” Powell said.