FCC Unbundling Revisited

It is said that in a liberal democracy the aim is equality of opportunity, while in socialism the aim is equality of outcome. Governments here and around the world have struggled with this dichotomy in developing and modernizing telecommunications regulation. The root of the dilemma is that telecommunications has in most countries become a monopoly or small oligopoly, with the government often taking a stake in these enterprises. The reasoning usually came down to a belief that telecommunications infrastructure, especially the "last mile" is a natural monopoly, and the realization that telecommunications is not only an important utility but one that is critical to society's functioning.

When the United States implemented local telephone competition in the mid-1990s, they recognized the need to tilt the playing field in favour of the new entrants, if only for a limited period of time. They correctly recognized that building a telecommunications infrastructure is extremely capital intensive, and without some legislative assistance it would be difficult for new entrants to compete with the incumbents whose capital budgets were a far smaller percentage of their budgets. As an additional spur to competition, to reduce the required capital intensity and to speed the availability of geographically-broad alternatives, the incumbents were required to unbundle local loops and other parts of their networks.

This all happened during the Clinton administration, which was willing to manage outcomes to a limited extent, with the intention that the country eventually return to a state of equal opportunity in the telecommunications industry. They put the industry on notice by building into the 1996 Telecommunications Act sunset provisions for many of these intrusive measures. Similar laws and regulations were adopted in many other developed nations, including Canada, though with lesser or greater intention in accordance with local political leanings. All this meddling is political and so it is no surprise that it was, and is, very much affected by the politics of the day. This is amplified in the US where socialism is an insult more than simply a description of an economic system.

With this history in mind, I was surprised to learn that the US is considering entering the fray once more with a modified form of unbundling to increase broadband competition. While there is little doubt that more broadband competition in the industry is helpful to consumers, this degree of government intervention is treacherous.

Certainly the current US administration is closer in sentiment to the one that spawned telecommunications reform that the most recent one. However, I think they are picking their fights carefully, choosing to focus on a few very specific issues such as health care. Intervention in the broadband market would only distract from higher priorities. I do not believe the FCC will be encouraged to mandate any further unbundling in the industry, not even the somewhat more benign form of DSL service unbundling that we have in Canada (Gateway Access Service), even though it is present in scattered locations in the US, but without the tight price and availability controls we have. There are also technology issues with unbundling -- copper loops are not seen as sufficient for the market's evolving requirements -- since it presupposes a network architecture that may not survive far into the future.

Wireless is the main disruptor here, and governments are -- correctly, I believe -- looking to these technologies to provide infrastructure-level competition in the industry, across both wired and wireless: in Canada this will take the form of new cellular providers, and in the US it will be companies like Clearwire. This would relieve them of the political risk of trying to regulate separation of physical network components from retail services, which requires permanent and intrusive oversight.

For at least the present, the likelihood of that level of intervention is small in both the US and Canada. In Canada that also means we should not expect any expansion or improvement to GAS, ever.