`Digital dirty dozen': the Cato Institute lists examples of bad technology policy to warn Congress away from regulation

0 Comments | Insight on the News, March 18, 2002 | by William Glanz

Lawmakers increasingly are eager to regulate the technology industry, according to a report by the Cato Institute. "We see Washington becoming very comfortable with being meddlesome," says Adam Thierer, director of telecommunications studies at Cato, a libertarian think tank in Washington.

The willingness of Congress to introduce bills to regulate the technology industry represents a significant change in the laissez-faire approach it took to the Internet just a few years ago. Fearful that burdensome laws would stall an industry that helped drive the nation's economic growth, Congress has been slow to endorse technology legislation. A moratorium on Internet taxes was extended last year.

Nevertheless, the Cato study has identified a "digital dirty dozen" of what it considers bad public policy, the worst example being a bill introduced by Sen. Ernest "Fritz" Hollings (D-S.C.) that could force the breakup of the regional Bell operating companies. The measure would require the Baby Bells to separate their wholesale businesses (the arm operating the infrastructure of wires and switches) from their retail operations (the arm marketing calling services) to promote competition.

According to the Cato study, so-called "structural separation" would be difficult to achieve, would not spur competition in local calling, could harm the Baby Bells -- Verizon Communications Inc., BellSouth Corp., SBC Communications Inc. and Qwest Communications International Inc. -- and damage the economy. Competition has failed to emerge in the market for local calling services, and the Baby Bells have more than 90 percent of that market even though competitors can latch onto the telecommunications network. Instead of forcing the Baby Bells to open their networks to competitors, Congress should force competitors to build their own networks, according to Cato. "Sharing isn't competing," says Thierer.

On the other hand, forcing structural separation will help consumers and Bell competitors by ensuring that the Bells open their networks, argues H. Russell Frisby Jr., president of the Competitive Telecommunications Association (CTA), a Washington group representing competitive local-exchange carriers. The market-opening provisions of the Telecommunications Act of 1996 are too weak to force that change because it is too hard to convince a monopolist to relinquish its monopoly, according to the CTA. In addition, structural separation has worked in other industries, including the energy markets, and it can work in telecommunications, Frisby asserts.

The Cato Institute has attacked two other telecommunications bills: one sponsored by Rep. Chris Cannon (R-Utah) and one sponsored by Rep. John Conyers (D-Mich.), both of which would allow greater antitrust oversight of the Baby Bells. One would forbid the Baby Bells from offering long-distance phone service if they have 85 percent or more of the local-calling market. The other would allow greater antitrust enforcement against the Baby Bells if they fail to live up to the Telecommunications Act.

Both bills are attempts to influence the debate surrounding another controversial measure sponsored by Reps. Billy Tauzin (R-La.) and John Dingell, (D-Mich.), Thierer says. The Tauzin-Dingell bill would let the Bells stop leasing lines and equipment to competitors.

WILLIAM GLANZ WRITES FOR Insight's SISTER DAILY, THE WASHINGTON TIMES.