With loud calls for increased competition coming from proponents of "open access," as the case between AT&T and the City of Portland is pending in the Ninth Circuit Court of Appeals, it’s time to recall a basic economic truth. A truly competitive marketplace produces incentives for innovation and falling prices, but mandating competition often leads to unintended consequences. Letting rival firms get a "free ride" on AT&T’s cable lines will distort the market and may ultimately harm the consumer.

AT&T has spent close to $120 billion buying cable companies around the nation in order to offer high-speed Internet access and local phone service to consumers. The connection will be up to 100 times faster than traditional dial-up modems and will introduce competition into the Baby Bell’s local telephone monopolies.

In response, a coalition of Internet Service Providers, led by America Online (AOL), is calling for local governments to require that AT&T open their lines to competitors. Last December, the city of Portland and Multnomah County conditioned their approval of the change-of-ownership request for AT&T’s purchase of the local cable franchise on AT&T offering open access of their cable lines to competitors. AT&T took issue with the condition and filed suit in federal court later that month. In June the court sided with the local governments and AT&T appealed the ruling to the Ninth Circuit Court of Appeals, where the case is currently pending.

The race is on among telecommunication firms to meet the enormous amount of demand predicted for high-speed Internet access in the years to come. Research from Goldman Sachs Group Inc. estimates that 73 million U.S. households will use some form of broadband service by 2008. This will likely mean substantial growth for the already $300 billion U.S. Internet economy and large profits for the telecommunications firm that can bring high-speed access into the home.

The type of technology consumers will prefer is still unknown. With AT&T’s comprehensive network, cable is one of the front runners and open access supporters argue that consumers will be left without a choice for high-speed Internet access if AT&T is not forced to open the lines to competing firms.

This argument erroneously implies that cable is the only viable option for consumers. In reality, telecommunications firms are thinking outside of the cable box and offering alternative forms of high-speed Internet access. Digital Subscriber Lines (DSL) use existing phone lines to deliver access at 50 times the rate of a dial-up modem. The service boasted 200,000 subscribers as of June and is growing five times faster than cable.

Additionally, wireless technologies are expected to gain a comparable share of the market within a few years. AOL has already invested $1.5 million in Hughes Satellite, with the intent of offering high-speed data wirelessly.

But in order for new technologies to develop, firms must know that they will reap the benefits of their investments and that their assets will not be doled out to competitors by well-meaning, but misguided, local governments. There’s no incentive for a company to invest in new technologies when their competitors can avoid all of the costs and risks of innovation, but still share in its spoils.

Even if cable does become the preferred method of high-speed Internet access, AT&T would not be guaranteed a monopoly position. The costs of building another cable system are not prohibitive, especially for corporate giants like AOL and GTE. If high-speed Internet access proves as profitable as many predict, raising sufficient capital for a competing network wouldn’t be implausible. In fact, two companies are already building separate networks of cable lines to compete with AT&T for high-speed Internet connections, digital TV, and local and long-distance phone service in the San Francisco bay area.

AOL and other rival firms are understandably concerned about their ability to compete when high-speed Internet service goes mainstream, but this doesn’t justify distorting the market to the detriment of consumers. Competitive forces are already at work, increasing value and choice for the consumer.

Politicians should allow this to continue and refrain from distorting the marketplace. By striking down open access, all the incentives will be in place for fierce competition and consumers will be the beneficiaries.