INDUSTRY ANALYSIS
Reforming Telecom To Create Jobs

Many Americans are worried about outsourcing jobs to other countries, prompting President Bush to exalt the benefits of freer trade and Senator Kerry to argue for protectionist measures. But amid this political maneuvering, what's needed are solid suggestions for how to make America more competitive and encourage creation of new jobs.

One area where great progress can be made is in telecommunications reform. There is a clear link between increased broadband access and job creation. Not only would greater broadband penetration kick-start companies that provide tools for the networks, but if Americans want to compete with workers around the world, U.S. data needs to travel as fast as theirs.

Currently, the United States ranks 11th in high-speed Internet use per capita, behind countries like Italy and Canada. And to make matters worse, American broadband speeds are slower than those in other countries. The reason for this sluggishness is due in large part to the fact that the nation's telecom companies have been struggling under poorly crafted regulations and harmful politicking.

Politics of Telecom

Indeed, the politics of telecom have hit a boiling point. AT&T (NYSE: T) recently yanked a controversial newspaper ad implying that Bush's decisions on telecom could cost him the election, and letters from economists, policy makers and others are piling up at the White House.

Regulations stemming from the 1996 Telecommunications Act forced phone companies like the Bells to share their telecom infrastructure with their rivals at low, government-set prices. This scheme created a false "competition" that hampered and distorted 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 at price-controlled rates.

True Competition

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 legislators that the definition can be rewritten.

In a March 18th 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 of the Members clearly understood what they were signing, but Eshoo and Honda should know better.

Tech companies like Cisco Systems (Nasdaq: CSCO), Intel (Nasdaq: INTC) 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 .

Making Competitors Share

About a month ago, the U.S. Court of Appeals for the D.C. Circuit handed down a welcome 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 no doubt are 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 US$101 per average household.

Furthermore, according to a recent study by economists Robert Crandall and Hal Singer, the FCC's rules destroy 1,300 jobs for every million telecommunications lines that are resold by a competitor.

New Economic Output

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 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.

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.