The Cato Institute
WASHINGTON -- Will "states' rights" derail telecom deregulation?
by Adam Thierer
During the 11th hour of a heated Federal Communications Commission debate last month over the complicated rules governing local telecommunications networks, a disagreement about the ongoing role of the states in the regulatory process became the key stumbling block to a much-needed revision of current regulatory policies. Although this dispute over "states' rights" and telecom markets may seem like an arcane matter of fleeting importance, in reality it will have profound ramifications for the long-term liberalization and economic revitalization of the ailing telecom sector.
The FCC's Feb. 20 decision in the Unbundled Network Element Triennial Review, which reevaluated the unbundled network element platform, or UNE-P, that incumbent local exchange carriers, known as ILECs or Baby Bells, must share with competitive local exchange carriers, or CLECs, at regulated rates, came down to a split 3 to 2 decision.
Republican commissioner Kevin Martin ended up siding with the two Democratic FCC commissioners to thwart the deregulatory alternatives favored by FCC chairman Michael Powell and Commissioner Kathleen Abernathy. Commissioner Martin's maverick move was premised on the notion that a more "granular" regulatory approach was advisable, meaning state regulators should be given an ongoing or even expanded oversight role.
The theory behind his endorsement of such state oversight is that it will help "preserve local competition," primarily by allowing state regulators to secure continued low-priced access to UNEs by rivals. During this process, a handful of conservative groups also initiated an advertising campaign to lend their support to Martin's "granular/states' rights" position.
There are three primary deficiencies in the logic espoused by Commissioner Martin and these conservative groups. First, the states' rights rallying cry has become a convenient front for the forces who oppose serious telecom reform. Commissioner Martin and these conservative activists have now become the unwitting champions of those who believe that only extensive and ongoing regulatory interventions will bring about a competitive nirvana in telecom.
That ethos was formulated and enshrined into law by former FCC commissioner Reed Hundt, whose expansive reading of the Telecommunications Act of 1996 focused on encouraging short-term entry by guaranteeing rivals cheap access to virtually every element of the Baby Bells' networks. Enter they did, by the dozens, but only on a resale basis for the most part. The rules encouraged infrastructure sharing over facilities-based investment.
More important, Hundt's FCC encouraged creative interpretations of the rules by the states that went beyond what the FCC required. State regulators were all too happy to oblige, pushing access prices lower and lower in the name of competition. The theory behind all this subsidized network sharing was that (1) no rival would seriously consider competing against local wireline network providers (apparently 137 million cellular subscribers don't count for much!) and therefore, (2) we might as well let everyone share existing networks at the cheapest rate possible so that consumers can enjoy the myth that infrastructure socialism offers them credible competitive alternatives.
With Commissioner Martin's recent coup d'état, this truly Orwellian "sharing-is-competing" philosophy has received renewed justification at the FCC despite Powell's best effort to curtail this corrupt regulatory regime. The fact that telecom markets have tanked -- and lost $12 billion more in market capitalization in the wake of this latest decision -- challenges the wisdom of extending the UNE-P infrastructure sharing regime, especially now that 51 different state regulatory agencies have been given expanded authority over national telecommunications carriers.
The second problem with this logic is that it is based on an improper interpretation of federalism principles as applied to telecommunications markets. Federalism is a two-sided coin; the flip side of "states' rights" is interstate commerce.
There is little doubt that the vast majority of tasks undertaken by the federal government since the New Deal era have been an unjustifiable usurpation of the powers that the Constitution granted to the states or the citizenry. But the Constitution was also an explicit rejection of the Articles of Confederation: the disadvantages of untrammeled "states' rights" were trade disputes, protectionism and interference with the flow of interstate commerce.
Consequently, the Founders wisely granted Congress the authority to take steps to regulate commerce among the states -- that is, to keep open the channels of interstate commerce to ensure that free trade would win out over factionalism.
Applying the Founders' vision to high-tech markets they could not have envisioned is tricky, but not impossible. Fifteen years ago, Brookings Institution economist Roger Noll argued, "The notion that there is a meaningful technical and economic distinction between federal and state services was always a fiction, but it has become increasingly so."
That is, the idea that telecom markets can be neatly carved into geographical units and regulated differently has always been based on a fundamental misunderstanding of the nature of the beast in question. After all, at the very heart of telecommunications is the notion of transcending boundaries and making geography and distance irrelevant. And from an economic viewpoint, the marginal cost of placing a call a mile away is about the same as placing one 1,000 miles away.
So it seems that if ever there was a good case to be made for an activity being considered interstate commerce, this is it. And yet, America's telecom market remains riddled with a patchwork of policies that actually thwart that goal and seek to divide the indivisible and place boundaries on the boundless.
Which leads to the final problem with Commissioner Martin's logic: In endorsing a more "granular," state-led approach, does he honestly believe that serious deregulation will be achieved any time in the near future?
Thanks to his efforts, 51 state regulatory commissions are now free to continue their experiment with telecom markets. Where is the end to this process? Will state regulators ever say that enough is enough, lay down their guns and call it a day?
Not likely. More likely, they will find creative ways to expand their powers and justify their continued existence. Open access for cable systems is still on the agenda for some, as is the question of universal service for broadband. And what about the Internet? Is a more "granular" regulatory approach advisable there as well? We'll see what happens as Internet telephony begins to catch on.
It is important to recall that not so long ago, before the Telecom Act preempted it, most states had laws on the books well into the 1990s that made it illegal to compete in telecom markets at all. It is difficult to recall any case in which state regulators have proposed freeing up a communications service; almost all serious deregulatory initiatives began at the federal level. And that has been the case in other industries as well.
If the United States is ever to see the "pro-competitive, deregulatory national policy framework" mentioned in the first line of the Telecommunications Act of 1996, misguided states' rights logic like that espoused by Commissioner Martin must be overcome.
(Adam Thierer, is director of telecommunications studies at the Cato Institute.)
The Reason Foundation
LOS ANGELES -- Diplomacy bites: Where's George Herbert Walker Bush when the world needs him?
by Tim Cavanaugh
Perhaps there never was any hope for Gerhard Schroeder. Maybe Jacques Chirac's falling out with the United States and United Kingdom was pre-ordained. It's quite believable that Vladimir Putin was bound to become an opponent of American interests in the Middle East.
But what did Tony Blair do to deserve this disrespect?
Having hitched his political career to President Bush's plan for a war with Iraq, the British Prime Minister now finds himself, very publicly, twisting in the wind -- deserted by his own party, locked in a sideshow policy skirmish with France. And most depressingly, abandoned by his American friends, who can't even be bothered to throw him a kind word.
Yesterday, Secretary of State Colin Powell floated the unsurprising possibility that the United States may eschew a second United Nations resolution on Iraq.
All things being equal, ignoring the United Nations would be a praiseworthy move no matter what the issue. But Powell's comment comes a day after Blair's hapless foreign secretary Jack Straw proposed another diplomatic maneuver at the U.N. -- the set of six "tests" to ensure Iraq's compliance with Resolution 1441.
Blair didn't make this move out of charity, or a forlorn hope of continued weapons inspections; he did it to head off a party mutiny and the vast disaffection of the British populace. Now his proposal is being stinkbombed by war opponents and ignored by the United States. (Britain over the past week has been so alone in its diplomatic efforts that you'd think the war was Blair's idea rather than Bush's.)
What if disaster really came Blair's way, in the form of either an electoral revolt or a humiliating climbdown from his Iraq stance (two possibilities that may in the long run prove to be the same)? Would the United States shed a tear? Not according to Secretary of Defense Rumsfeld. "What will ultimately be decided is unclear as to their role," the chuckling hawk told reporters Tuesday.
Can there be any explanation for this disregard of a man who has done nothing but stand up for America, argue the case for war more convincingly than any American officials have, and staunchly support the Bush Administration, at a probably suicidal cost to his own political career?
Let us harken back to the foreign policy wisdom of 1990 and 1991. Actually, we don't need to go back that far, since former President George Herbert Walker Bush is here to remind us.
"You've got to reach out to the other person. You've got to convince them that long-term friendship should trump short-term adversity," the elder Bush told an audience at Tufts University the other day. The comment -- referring to Bush Jr.'s rift with France and Germany -- came in the context of a speech in which the former president warned that hopes for middle east peace would be dashed if the current president failed to build an international coalition, and warned that mending relations with the European allies must be done before, not after, the conflict.
With due acknowledgment of the way momentous decisions often hang on petty concerns, let's leave aside the possibility that the former president just doesn't want to see his son succeed where he himself failed. That Bush Sr. has been at best a lukewarm supporter and more probably an opponent of his son's plan to overthrow Saddam Hussein is a fairly open secret among Bushologists. But a more revealing difference in approaches can be seen in how the two presidents attempted to build their respective coalitions of the willing.
The degree to which President Bush Sr. successfully built worldwide support for the first Gulf War is a point now largely dimmed by history. More completely forgotten is that building this coalition was an uphill battle. While Iraq's August, 1990 invasion of Kuwait was an unusually galvanizing event (bringing condemnation even from the Soviet Union), Bush's plan to kick Saddam out of Kuwait was viewed with skepticism both at home and abroad.
Few Arab countries wanted any part of a coalition against Iraq, nor did many of the western European allies. Jordan sat the war out and made pro-Iraq noises -- an insult Bush Sr. discussed in his recent speech. Even after hostilities had commenced, the Soviet envoy Yevgeny Primakov continued to insert himself into the mix, floating absurd ceasefire proposals and proposing sordid compromises with Saddam.
Through all this opposition, Bush and his Secretary of State, James Baker, were tireless in their resolve not to go it alone. And they were successful: In the final score, even the Soviet Union supported the U.S. effort, and even Syria joined the coalition. Whatever you may think of the 1991 war, George Herbert Walker Bush knew how to make it happen.
How do you explain the difference between 41st president's remarkable success in coalition building and the 43rd president's notable failure? Up to now, most commentators have been content with blaming the foreigners -- insulting Schroeder's manhood or the content of Chirac's character, making ad hominem attacks on French Foreign Minister Dominique de Villepin, etc.
This makes no sense historically. By almost any measure -- fiscal conservatism, foreign policy realism, pro-Americanism -- Chirac is a vast improvement on Francois Mitterand, his 1991 counterpart. Is there any prospective ally (or even bystander) out there more offensive to freedom and decency than Gulf War ally Hafez al-Assad? By what measure can Putin not be considered a step up from Mikhail Gorbachev? If one Bush could line up all these friends, why can't the other?
The difference in secretaries of state is a convenient place to start looking for an answer. As Eric Boehlert noted in a recent article on Salon, Baker made eight separate trips overseas and traveled to 18 capitals between August 1990 and January 1991. Powell, who barely ventured out of the Americas between September 2002 and mid-January 2003, noted in his 1995 memoir "My American Journey" that he is not interested in travel -- an unusual trait in a secretary of state, to say the least.
But a more crucial difference may be the palpable sense Bush Jr. gives of considering foreigners not worth his time. Consider a little-noted incident last spring, where Bush objected to a reporter's temerity in speaking French to the president of France. The Washington Times' Bill Sammon described Bush's press conference with Chirac:
"Turning to Mr. Chirac, (NBC's David Gregory) added in French: 'And, Mr. President, would you maybe comment on that?'
'Very good,' Mr. Bush said sardonically. 'The guy memorizes four words, and he plays like he's intercontinental.'
'I can go on,' Mr. Gregory offered.
'I'm impressed -- que bueno,' said Mr. Bush, using the Spanish phrase for 'how wonderful.' He deadpanned: 'Now I'm literate in two languages.'
Again, all things being equal, insulting NBC's David Gregory would be a praiseworthy act. But that que bueno -- with its implication that all foreign languages are a mélange of Pig Latin, could not contrast more sharply with the legacy of postwar wise men that Bush Sr. believed in, and continues to believe in, so firmly.
It's also worth noting the pro-American response Chirac, so widely vilified of late, gave to the same question:
"These (anti-U.S.) demonstrations are really marginal demonstrations," the French leader said. "You shouldn't give too much credit to these demonstrations. They do not reflect a so-called natural aversion of such-and-such a people in Europe to the president of the United States or to the U.S. people as a whole."
Mr. Chirac said the bond between America and Europe is "an increasingly important relationship, and it would be the sign of shortsightedness to refuse to acknowledge that."
Boy, doesn't that seem like a long time ago!
Bush's distaste for dealing with foreigners makes an uncomfortable fit with an interventionist foreign policy. Whatever new security doctrines of pre-emption and unilateralism the administration may be proposing, only a fool goes into the world without friends, let alone allies. (In fact, even the administration's notorious September 2002 National Security Strategy acknowledges the need for coalitions.)
What foreign policy victories the administration has won lately have been strictly of the monkey's paw variety. The eight "New Europe" countries sent their letter of support a few weeks back, but since then little has come of this new alliance. Italian Prime Minister Silvio Berlusconi, for example, has not been heard from at all recently, no doubt watching Blair's implosion and wisely staying close to the ground.
The United States (actually, the United Kingdom) has apparently succeeded in winning security council votes from the Francophone countries in Africa, but is the point of this diplomacy to despoil France of its post-colonial friendships or to build support for a war with Iraq?
The policy failures, on the other hand, have been enormous in their scope and import. We have not merely aggravated old wounds with France and Germany. Where Blair is concerned, we're undermining the man who is essentially our only real friend in this fight. We are preparing to send American forces into a postwar situation where any number of neighboring countries would be happy to, say, pass out rocket launchers to local zealots or send a truck bomb into a Marine barracks (and not, as the argument goes, because those governments are al Qaeda supporters who will hate America under any circumstances).
If the polls are to be believed, Bush will even be alienating the majority of his own electorate if he goes to war without U.N. approval.
As Bush Sr. notes, it's not too late to repair the damage. The first step would be to give Tony Blair an out, to admit (internally) that the "deadline for war" is an artificial number that the United States can, with no damage to its reputation, revise indefinitely -- in fact, to admit that time is on our side, and that a show of patience at this point might actually help to build the case. Then George W. Bush might want to get out of Washington for a while, and see that the bureaucratic timetable on which this war is perched fits in with nobody's conception of wise foreign policy.
Who knows? Saddam Hussein, for all his deceptions, has proved remarkably tractable these past few months (a point for which hawks are ironically unwilling to take the credit they deserve, since admitting threats work diminishes the case for war). He might become even easier to budge if he were facing the more credible threat that a real coalition can present.
But more important than the fate of a tinhorn dictator is undoing the damage Bush's relentless antagonism has wrought around the world -- a fact that really does make life more dangerous for Americans at home and abroad. Maybe we can't make the rest of the world love us, but we can at least spend some time making sure that they don't hate us.
(Tim Cavanaugh is Reason magazine's Web editor.)
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