IV. Examining Arguments in Favor of Forced Access

Advocates insist that forced access to the incumbent network is necessary to create competition in local calling services. They prefer the term “fair access.” But as the data in the preceding section indicate, this approach has not achieved the intended results. To avoid similar results in the future, it is instructive to examine some of the reasoning that has contributed to this policy failure.

Generally speaking, wire line competitors say they are entitled to network access because wire line facilities, built over decades as a state-sanctioned monopoly, would be too costly to duplicate. From this point of view, the network is more a public property than a private property. They argue that incumbents should not be allowed to exploit the advantages of having operated as a state-sanctioned monopoly, including a captive market and regulated rates of return on investment.

At its most elemental, this view of the access issue is less about competition than about the redistribution of telecom assets. Because the incumbents’ market dominance was derived from government regulation, incumbents are obligated to share the network, according to the reasoning of access advocates.

It is certainly true that development of the incumbent network was facilitated by government-granted rights of way as well as by cost recovery. But it is also a fact that monopoly status carried a host of service requirements and prohibitions, as well as rate regulation that has kept residential phone bills artificially low for decades.

Simply put, there were costs as well as benefits to being a state-sanctioned monopoly. And while the wire line network continues to be a primary component of telecommunications, the technological changes overtaking the industry may well render it largely obsolete in the future. Public policy should not increase dependence on dated technology.

Telecom is indeed a capital-intensive industry. It would be costly to duplicate the existing network. But competition in telecommunications does not depend on a duplication of wire lines. Entrepreneurs in myriad industries have successfully challenged monopolies without relying upon government redistribution of assets.

For example, the U.S. Postal Service has long operated as a monopoly. But companies such as Federal Express and United Parcel Service, along with messenger services and a host of other private mail delivery options, built competing businesses without demanding access to Post Office facilities. Moreover, new technology, in the form of e-mail, has dramatically reduced the dominance of government mail delivery.

The reality is that incumbent wire line companies have an incentive to serve as wholesalers of network access without government interference. As incumbents continue to lose lines to competing technologies, they must find new sources of revenue. But by imposing below-cost access rates, the government has reduced the incentive for incumbents and competitors to negotiate mutually beneficial access contracts.

Competition should not depend on the regulatory seizure of private property. While wire line competitors have spent years battling for ever-more access in Congress and courtrooms, wireless and cable firms have built alternative networks that pose a significant competitive challenge to wire line incumbents.

As this report documents, government regulation of the network has not produced the benefits proponents envisioned. Were forced access a viable competitive strategy, it is doubtful that hundreds of companies dependent upon it would have declared bankruptcy in the past three years. Even the Federal Communications Commission has acknowledged that forced access is not the optimal solution for competition in local calling. As the commission stated in 2000: “The greatest long-term benefits to consumers will arise out of competition by entities using their own facilities.” Because facilities-based competitors are less dependent than other new entrants on the incumbents’ networks, they have the greatest ability and incentive to offer innovative technologies and service options to consumers.”[31]

Looking to government to solve problems created by government does not make for sound policy. The regulatory mistakes of the past cannot be repaired simply by reconfiguring regulation. It may not be “fair” that the incumbent networks once operated as state-sanctioned monopolies. But their market power will not be lessened by regulation that increases competitors’ dependence on that very network.