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  • telcom_sector_report telcom_sector_report Jul 17, 2002 10:57 AM Flag

    Phone firms get raw deal --USA Today

    Say you want to be a grocer. You invest in a building, shopping carts, refrigerators, cash registers, the works. Then, the government decides your town needs more competition. But, instead of encouraging others to build grocery stores, regulators order you to give would-be competitors access to your shelves and your inventory at prices that do not cover your operating costs.

    Is the result greater competition? Not really. Customers get no more real choice, and any price break is not economically sustainable.

    Change grocery stores to phone companies, and you have today's telecom debacle. Regulators have forced incumbent local telephone companies to piece out their networks at below cost.

    Now, New York and California are making these uneconomic discounts even more severe: punishing companies that build up the nation's telecom network and rewarding those that don't. After all, why build your own store when you can use a rival's for less?

    It's bad policy for the nation. The actions of New York and California further divorce the ailing telecom market from economic reality and discourage needed investment in the nation's telecommunications infrastructure. It's a surefire path away from real competition, should other states follow their misguided lead.

    Competition in name only does nothing to help consumers. In fact, today, the primary sources for such competition for the mass market are outside traditional phone networks � from wireless and cable companies. For example, in a USA TODAY poll, 18% of cell phone users considered their cell phones to be their primary phone line.

    With the days of easy capital behind us and an era of rising competition from cell phones, cable and the Internet ahead, the economic pressures on local phone companies are significant.

    Much has been written about failures in the telecommunications industry. Among the first to go were those who didn't create real value by investing in their own networks. Current regulation encouraged that approach.

    We cannot change this recent past, but we will suffer as a nation if we fail to learn its primary lesson: When public policy is based on nothing more substantial than economic wishful thinking, in the end � nobody wins.

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