Tech Central Station, April 8, 2004

President George Bush and Senator John Kerry both recently acknowledged the link between increased broadband access and job creation. This renewed attention to telecommunications is important, as the industry has been struggling under poorly crafted regulations and harmful politicking. Indeed, the politics of telecom have hit a boiling point.

AT&T recently yanked a controversial newspaper ad implying that Bush's decisions on telecom could cost the election, and letters from economists, policy-makers, and others are piling up at the White House. But while this flurry of activity might be fun to watch, what isn't funny is how Americans are falling behind because of policies that stifle competition and innovation.

The US ranks 11th in high-speed Internet use per capita, behind countries like Italy and Canada. Regulations stemming from the 1996 Telecommunications Act force phone companies like the Bells to share their telecommunications infrastructure with their rivals at low, government-set prices. This scheme created a false "competition" that hampers and distorts investment.

A casual observer of the telecom wars is often unsure which side of the debate promotes true competition and benefits for consumers. Even well-known small government advocate Grover Norquist was confused on the issue, falling prey to the mistaken argument that competition means allowing companies like AT&T to resell the Bells' service.

True competition occurs when separate companies compete in the market with their own property and resources. It should be obvious that this is the proper understanding, but powerful lobbyists have been able to convince some California legislators that the definition can be rewritten.

In a March 18 letter, 19 of California's Members of Congress, including Silicon Valley reps. Anna Eshoo and Mike Honda, told the Federal Communications Commission (FCC) that "the Telecommunications Act passed by Congress in 1996 has been a success..." Perhaps not all the Members clearly understood what they were signing, but Eshoo and Honda should know better.

Tech companies like Cisco Systems, Intel, and others are reeling under the madness of the 1996 Act and anyone who's paid even scant attention to the monstrous litigation trail would hardly call it a success. The U.S. Court of Appeals for the D.C. Circuit recently handed down a thoughtful judgment rejecting the FCC's effort to impose harmful "unbundling" rules to make competitors share their telecommunications infrastructure.

Now, lobbyists for the companies that want to be resellers are trying to convince the Bush Administration that it should support Supreme Court review of the D.C. Court's decision. While strategists in both the Bush and Kerry camps are no doubt weighing the political pros and cons, the economic facts are clear. Already, government price controls on telecom are resulting in an annual decline in economic output equivalent to $120 per average household in California.

Further, according to a recent study by economists Robert Crandall and Hal Singer, the FCC's rules destroy 1300 jobs for every million telecommunications lines that are resold by a competitor. To create more jobs and spur investment, regulatory barriers need to be permanently removed, making it imperative that the D.C. Court's wise decision remains in force.

Widespread broadband deployment in California alone would create 170,000 new jobs in telecommunications and related fields, according to a new study by Dr. Wayne Brough, chief economist at Citizens for a Sound Economy. It would also spur $90 billion in new economic output - a potential lifeline for states facing massive budget deficits and a glimmer of hope for workers in Silicon Valley and elsewhere who are worried about the economy and the outsourcing of jobs.

President Bush and Senator Kerry were right to raise this important issue. Now, it's time for policymakers, and the public that elects them, to pay attention and take action. In the lamentable "jobless" economic recovery, fixing the nation's telecommunications mess will help create jobs.

Sonia Arrison is Director of Technology Studies at the Pacific Research Institute. She can be reached at (sarrison@pacificresearch.org.)