Dear Editor:
The Telecommunications Act is now law. The President’s pen unlocked doors to fair and free telecommunications competition that had been closed in some key areas for decades. Business and residential users, and our economy, will be the big winners if we, the communications companies, and the Federal Communications Commission carry out the intent of the act: competition everywhere, regulation only when absolutely necessary.
The first test of the principles of the new act is upon us. Late last year the FCC issued a proposed ruling that would directly lower the cost of wireless telephone services and enable wireless companies to compete directly as a local telephone service provider. The FCC’s final decision and the telecommunications industry’s response will speak volumes as to whether the goals of the act are going to work.
The FCC proposal cuts through the Gordian Knot of complicated legal battles over the “right” price of local to local network interconnection. It proposed that when local wireline and wireless networks interconnect, each should agree to terminate the traffic of the other, and each should not charge the other for that service. Each would keep what it charges its customers for originating the call.
This is a big change from current practice. Today, every local exchange carrier imposes a termination charge on every wireless call it completes-but nothing is paid by LECs to wireless companies for calls that go the other way. This charge-from 2 cents to as high as 16 cents per minute-bears no relation to the actual cost of terminating wireless traffic, which experts agree costs next to nothing.
The LECs may feel threatened by this proposal. Reciprocal termination ends what had been a steadily growing one-way stream of revenue for them. More importantly, it would remove the absolute barrier to wireless companies competing with LECs for all local service, which they obviously cannot do today when the average 3 cents a minute terminating charges to LECs alone far exceed what LECs charge for basic local telephone service. It stands to reason that they might feel threatened. But should they? Only if they ignore history and the economics of communications competition.
The drama of incumbents fighting new competition has been played out repeatedly in the telecommunications arena: newspapers opposed to radio; AM radio was scared of FM; the demise of radio was predicted when television emerged; broadcast television fought cable; cable didn’t want to lease its programming to new satellite competitors; AT&T for years resisted long-distance competition from companies like MCI, and fought equipment competition as well.
In each case, the incumbent monopoly or oligopoly providers claimed competition would severely harm or ruin them. Yet, in each case history proved that the cries of gloom and doom were wrong. Communications competition actually causes markets to expand, allowing all savvy participants, the prior monopoly provider and new competitors, to flourish. The entry of wireless services into the full local service market should be no different.
First, reciprocal termination will lower costs for all wireless customers, almost immediately. Lower consumer costs will encourage increased usage by customers, which means more calls and greater use of everyone’s local networks.
Reciprocal termination will not lead to higher local phone rates. Compared to total LEC revenue, wireless interconnection payments are insignificant, in the neighborhood of 50 to 60 cents a month. The LECs can generate far more income by creatively encouraging their customers to make calls to wireless users.
Reciprocal termination should spur the creation of new services and customer options, for which LECs can charge. The current interconnection charge system irrationally has turned wireless into a one-way service; the majority of calls originate from wireless telephones. With the incentive of reciprocal termination, the LECs will develop services to encourage calls from wireline phones to wireless users, like the Calling Party Pays programs a few have started, along with related services like directory listings and call completion.
Fears that the FCC’s proposal will set a precedent for long-distance access charge payments to LECs are totally misplaced. Long-distance payments to local carriers are one thing. This is entirely different; it is local, co-carrier compensation.
It’s not like LECs are only on one side of this issue. Almost all of the LECs have invested heavily in the wireless industry. Today LECs are furiously investing in wireless, putting up antennas and building out their cellular and PCS networks. A large part of the wireless operations of many of these companies are outside their LEC service areas. Wireless is the fastest growth area for every one of them. They will profit directly from allowing wireless to expand to compete in the larger market of local service.
Finally, one of the key fights for the RBOCs in the coming months will be to demonstrate to the FCC that they are opening their markets to local competition so they can get into the long-distance market. It is hard for me to understand why they might compromise this decade-long goal by trying to prevent wireless from being one of those competitors.
Now that Congress has lowered barriers to telecommunications competition we have an option: we either can attempt to raise as many market barriers to competition as we can and try to hold off the inevitable, or we can roll up our sleeves and jump into the fray. The established communications industry players, including the LECs, know a thing or two about competition and have the tools, finances and drive to do as well or better than anyone else when consumers, rather than the government, are the judges of success or failure.
James A. Dwyer,
CTIA Chairman
