What's a Polite Word For 'Shakedown'?
October 1, 2005
By David C. McCourt
Special to THE WALL STREET JOURNAL
In a special opinion essay to the Wall Street Journal
written by media and telecom investor, David C. McCourt
offers a view on how regulatory change is important
to ensure “net neutrality” and the consumer’s
right to choice for competing network, content and
service providers.
Who lost broadband?
That depressing question reverberates among everyone
contemplating the future of telecommunications in
the United States, where the level of broadband penetration
has now dropped to 13th place in the world.
As someone who has spent the past 25 years building
and bundling cable, data and phone systems, the barriers
to broadband are frustrating. Critics sometimes suggest
that our broadband problems are a result of a lack
of imagination or innovation in the industry. But
to anyone who has actually tried to build a competitive
system, it is painfully obvious that local regulators
have become the bottleneck in the system.
These regulators have emerged as neighborhood tyrants,
protecting existing local and regional monopolies
and effectively holding competitive broadband hostage.
By creating unreasonable demands on any new entrant
to the market, local regulators have slowed the advancement
of broadband at the very moment when the telecom industry
might finally be ready to enter the next age of innovation.
Give-and-take between communication builders and
local regulators is nothing new. It grew out of the
well-established practice of ”linkage“
in the real estate industry.
Whenever urban developers planned a new building,
city officials would often demand some municipal benefits—a
park, a public plaza—in exchange for building
permits. It didn’t take long for the practice
to spread from real estate to telecom.
Twenty years ago in Boston I started Corporate Communications
Network, which built the country’s first competitive
telecommunications system. We got permits and started
digging up the roads to lay cable until some low-level
public works officials shut down our construction
while they debated what price to extract.
The impasse was broken by the legendary public works
commissioner Joe Casazza, who reminded officials that
the purpose of public works was simply to ensure that
the roads were returned to their original condition
after construction was completed.
One result of his bureaucratic restraint was that
Boston had competitive phone service before any other
city in the country. As the telecom boom grew in the
late 1990s, however, other local officials across
the country couldn’t resist asking for more.
In exchange for permits, telecom builders were told
they had to pay new fees, face higher taxes, create
local TV channels, and offer all sorts of “community
benefits.”
In the real estate industry those negotiations kept
the insensitive developer in check. The telecom industry,
by contrast, has been advancing so quickly that whatever
benefits a community might be able to squeeze out
of a telecom provider are far outweighed by the disadvantages
of not having broadband competition.
Yet the concept of linkage prevailed and before long,
building a new telecom system meant navigating through
a maze of hundreds of local councils, each with its
own list of demands. Little wonder that today the
vast majority of American homes do not have an alternative
broadband provider.
We have a second chance to get broadband right. The
former Bell companies like Verizon and SBC, admittedly
late to the game, are now eager to invest billions
of dollars to create high-speed networks that deliver
bundled voice, data, and video service. Even the FCC
has agreed that customers should enjoy what they call
“net neutrality”—the right to choose
among competing network, content, and service providers.
But the only logical way new competitors will enter
these markets is if local authorities are restricted
to focusing on the condition of their streets, not
negotiating contracts with service providers.
This month Texas passed a law allowing broadband
competitors to by-pass local regulators when introducing
new service to local markets. This event has become
a catalyst for renewed federal involvement. A bill
has already been introduced in Congress by Sen. John
Ensign that would free broadband providers from having
to win special permission from local authorities.
Local regulators will undoubtedly fight it. But it
is time residential customers were told that “linkage”
doesn’t bring better telecom service.
Indeed, according to GAO statistics, the absence
of cable competition in U.S. markets has raised monthly
rates, which average more than $40 a month, by 15%-41%.
Even using the low end of the GAO estimate, a community
with 500,000 households would stand to save its residents
$36 million a year—far more valuable than the
concessions the municipalities demand in the name
of the public interest.
There is much more at stake here than cable rates.
Today the Internet is still very much like electricity
a decade after Edison invented the light bulb. The
huge tide of applications has not even begun to appear.
But as Asia and parts of northern Europe have started
to discover, there is much more to broadband than
sending email, sharing digital photos, and downloading
music.
The next generation of Internet entrepreneurs will
discover how broadband will play a pivotal role in
health care, education, energy, and personal security.
Ideally, consumers should exploit all these opportunities
through a national policy of “net neutrality,“
giving them whatever applications and information
they want from the Internet without the interference
of regulators or industry bandwidth gatekeepers.
This is a rich opportunity for consumers and business
visionaries. But as long as the United States is still
battling municipalities about how to permit a broadband
competitor from entering the local market, those opportunities
will be pursued elsewhere.
Mr. McCourt has started or led 10 telecommunications
and media companies. He is chairman and CEO of Granahan
McCourt Capital, LLC.
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