Transcript
ALSO AVAILABLE: Luncheon Speech by Joel I. Klein
MS. MORRIS-ECK: Good morning. I'm Bailey Morris-Eck, Vice President of Communications at Brookings. Welcome to our National Issues Forum, the latest in a series, this is on the Telecommunications, the fight for true competition after the 1996 act.
We are very fortunate to have a distinguished panel today with us to start off our forum, followed by Joel Klein, who will give the luncheon address.
Just a few housekeeping measures, we will be taking questions and answers after the panel speaks, and also after Joel Klein speaks. If you would just please wait for the portable microphones to come to you, and identify yourself, that would be most appreciated.
And I'm going to turn the panel over today to Aaron Pressman of Reuters, who is our moderator. And we will start without further ado. Thank you for being here.
MR. PRESSMAN: Thank you all for being here also. We have a very distinguished panel to talk about the Telecommunications Act and what's going on, on the ground and in the courts. The Telecommunications Act is about 33 months old, and like many toddlers, people think different things about it. Some people say, um, what a clever child, it's all working out very well and prompting a lot of competition. Others think maybe it needs to go back and learn a few more lessons.
To discuss that today, we're going to start with Robert Litan, director of economics study program at Brookings, an economist and an attorney. Bob has worked in the Clinton and Carter Administrations, including as deputy assistant attorney general for antitrust when a certain Redmond, Washington, firm got its first experience with government antitrust scrutiny.
Next, we'll hear from Professor Roger Noll, a non-resident senior fellow at Brookings, and director of the public policy program at Stanford University.
Third is Henry Geller, communications fellow with the Markle Foundation, who spent most of his career at the Federal Communications Commission, including as general counsel and special assistant to the chairman.
Finally, sitting at the right, perhaps coincidentally, is Robert Crandall, a senior fellow in the Brookings Economics Studies Program, who has taught at Northwestern, MIT, University of Maryland, and George Washington.
We'll start with Robert Litan.
MR. LITAN: Thank you very much. Is it just as easy if I do it from down here.
I think it's instructive. Well, actually before giving the intro, just let me indicate that one thing you're going to see here today is that Brookings is not monolithic on the issue of telecom. We have three people up here who are affiliated with Brookings, and you're going to see a divergence of views on this controversial issue, which probably reflects a lot of the diversity out there in the real world.
Now, in thinking about the Telecom Act and trying to come up with an analogy, I'm not going to use the baby. I'm going to use the Wye agreement between the Israelis and the Palestinians. This is the agreement that we all know that was supposed to bring peace to the Middle East, but essentially in the Middle East what you do is, you always agree on what you're going to talk about next. And in a way that's what the '96 act did. It set a framework for what we were going to talk about next. There was an incredible amount of hype about how quickly the promised benefits of competition would actually be delivered, and the reality, of course, is that it takes a lot longer to fill out the agenda realizing that promise.
Now, in one respect, the Wye analogy is too pessimistic, because long-time observers in the Middle East will probably express some skepticism whether we'll ever get true peace. But in the long-run, and I want to stress in the long-run, but I can't tell you how long that's going to be, there's reason for optimism in the telecom area, and that is because we have a whole variety of technologies that are poised to crack the bottleneck monopoly which the regional Bell Telephone Companies have in the last mile to your house, which is a lot of what the act was about.
The act was basically waiving a carrot in front of the RBOCs, namely the authority to go into long-distance, and in return for that carrot, they would have to open up their markets, that was the theory of the act. And whether or not you agree with all the regulatory skirmishing and all the lawyers fighting, and the economists and the accountants fighting, the fact is that in the long-run technology, I think, ultimately will prove all of this irrelevant, and through a combination of cable, the electricity companies, wireless, and anything else that we haven't thought of, eventually, that last model monopoly will be cracked.
But what we're really arguing about here today is that transition period between now and the promised land, and how to accelerate the realization of competition. And the theory of the act was basically to allow the, or actually to force the RBOCs to unbundle their networks, to allow competitors to hook in at various points, to lease portions of the network at appropriate prices, so that they could compete in providing services and break that access monopoly.
Now, the reality, of course, is that it's been damned hard to crack. All we've had is fighting over the prices of the elements. We've had even fighting about the constitutionality of the act. All of these issues are going to be at the Supreme Court or are already at the Supreme Court. We're going to be talking about some of them today. But, I think it was probably highly unrealistic to expect that the regional telephone companies would just rollover and play dead. They are obviously going to do everything within their power, and I'm not being pejorative, this is certainly within their right, to preserve their existing market positions, just as the long-distance companies are going to use everything in their right to try to crack open this bottleneck.
Now, we have a policy brief that we've all issued out here today that Roger and I authored, which just came out today. And we put forward three propositions which will be fleshed out in the course of the discussion today.
Number one, we discuss the proposed mergers between Ameritech and Southwestern Bell on the one hand, and Bell Atlantic and GTE on the other. And we argue in this brief that approval of these mergers will actually slow the transition to competition, or at a minimum will certainly not accelerate it, and therefore we urge that they be rejected. That's the first proposition.
The second one is, that we argue that under the public interest test, which is in the statute, in the Telecom Act, that the FCC ought not to allow the RBOCs into long-distance until they can demonstrate that within their service territories there are at least two other competitors to them that serve at least half of the market, or are capable of serving half of the consumers, both business and residential, in their market. We argue for this test of two on the theory that it's better to have — in fact, it's necessary to have more than just a duopoly in these markets, you need at least three viable choices of local service before we think the commission could feel comfortable that they should relax the restrictions and allow the RBOCs into long-distance.
And the third proposition is, Roger and I advance what we think is an innovative way of potentially breaking the stalemate over this issue of when do you allow the RBOCs in. Everyone seems to be arguing on a sort of an all or nothing basis that an RBOC has to prove that it meets all these conditions in the act, plus the public interest test, on a statewide basis. And we argue that the FCC ought to invite applications from RBOCs on a less than statewide basis so that, for example, if RBOC could show in New York or in Chicago that there is sufficient competition to meet the test that Roger and I outlined, that the FCC go ahead and approve those requests for entry on a less than statewide basis. We believe that under the law, the FCC has the authority to do that. But that, if it doesn't have the authority, this is one area where Congress ought to act.
And we think this less than statewide, or this half-a-loaf, or a quarter-of-a-loaf strategy is better because it holds a carrot out there for an RBOC not to abuse its incumbent monopoly position. It will not want to abuse it, because it will want to convince the regulators that in the future it ought to get the whole carrot, and not just the half or the quarter that it may be given in the metropolitan area.
So, I will quit there and turn it over to Roger.
MR. NOLL: Bob really surprised me. He didn't tell me that I should come prepared to talk about the Israeli-Palestinian agreement. I don't know anything about it, so I'm not sure I have anything to say. But I can talk about the recent lease signed Hartford and the Patriots about moving. Will that be okay?
MR. LITAN: Only if it's just as contentious.
MR. NOLL: I just want to make a few observations about why we're in a telecommunications policy morass and, again, this is not a judgmental statement about any of the players in this game. The mistake is the Telecommunications Act of 1996. I was amazed that so many people thought it was a good idea at the time. It is the off-scale, the single most regulatory statute about an economic regulatory regime that has ever been passed. That is to say, the degree of detail and specificity in who should do what, when, to whom, and how, is truly spectacular.
Section after section after section of the act will start off with the proposition, the purpose of the following 279 rules, procedures, and regulations is to introduce competition. And that's an oxymoron. Regulatory procedures are things you do as a substitute for competition when you believe that competition is somehow infeasible. And the problem with the Telecommunications Act is that, frankly, the politics of telecommunications policy at the time the act was passed and, indeed, for the past 50 years, have made it impossible to write a statute that actually commits to competition.
And the reason for this is that there's all kinds of interests out there that want some little niche of theirs protected, and that's not surprising. I mean, that makes grist for great Washington, D.C., books, like Gucci Gulch, and most recently Ev Ehrlich's (sp) wonderful novel Big Government. We all know how Washington makes bills, and this one is no exception.
So the fundamental problem is, if you say, here's an extraordinary, elaborate and long list of things you must do, and while doing them make certain that North Dakota's telephone prices aren't substantially different than New York's, and make certain that something other than financial need is going to be the basis for internal subsidization in the telephone system, and make certain that libraries and schools and all these other things are provided with Internet access, whether they want to use it or not, and whether they actually have the financial wherewithal to pay for it or not. Once you start off with this perception that competition is going to be about still dividing the pie in the traditional way, you're dead.
One should either have a regulatory system that preserves the equities in the current system, or maybe rearranges them a little bit, but relies upon regulation as a permanent cure to whatever social problems exist from the operation of telecommunications, or one should have a commitment to competition. You can't have both simultaneously, and that's the fundamental problem with the act.
Now, I would just like, as one illustration of this point, just talk about the problem of interconnection, and the way it's described and analyzed in the act, and the enormous problem that the act creates for the FCC. The FCC is really making a good faith effort to do the best it can to cause the industry to be as competitive as market conditions and technology will allow. But they are doing so within the context of an extraordinarily intrusive piece of legislation, where they have to do enormous amounts of things to make this happen that are extraneous to the goal of local competition. And none could be better than interconnection.
Namely, the premise behind the act is somehow that competition does not require facilities. That it can be undertaken by unbundling the network and assigning various prices to various components, and providing equal access of all carriers to these components. If we really believed that, then we wouldn't have a competition deregulation strategy, because if there is a component to the network that is genuinely a monopoly, and that competition can only exist in the form of resale of that component, then, indeed, we're always going to have a regulated telecommunications industry. Regulated not only in the sense that this bottleneck will continue to be regulated, but in addition to that, the interface of that bottleneck, both upstream and downstream, will continue be regulated. So that the notion that we should cause the FCC to spend so much effort developing some sort of a permanent policy about the interconnection issue is fundamentally anti-competitive. And that's the problem the FCC faces.
Now, that doesn't mean that they don't have a transition problem, as Bob says. They have to worry about transition, because there is sort of an all or nothing feature to getting into the telecommunications business. If you want to enter into local service provision in a metropolitan area, you want to use conventional advertising mechanisms to acquire your customers, you want to enter on a metropolitan area wide basis, because that's the way the media work, and hence you want to come in and offer service to a very large number of people simultaneously, because of the dynamics of the investment problem in telecommunications, you don't want to have to wait until you've wired the entire metropolitan area or a large fraction of it before you open for business and start offering customers. So there is a transition issue about resale, but it should be thought of completely in a transition mode.
If the permanent circumstance is that local wire line carriers do have a permanent bottleneck monopoly in some aspect of the network, and competition cannot work for that particular bottleneck element, then the whole point of the Telecommunications Act is misguided. And that's an extraordinarily important point.
And the fundamental reason for it, of course, is not just the regulatory process reason, the fact that the regulatory process is: a) fundamentally anti-competitive because it slows down each firm taking strategic actions to gain market advantage over another, it slows down the competitive process. And in addition to that, it costs money to operate and to run. And, the other important fact about it is that you literally never can get the prices right. In other words, it is fundamentally impossible to get the pricing system right. And, by that I mean to have the prices not distort the behavior of the individuals. Whether it's the incumbent carrier that owns the bottleneck facilities, or the competitors who want to resell it, a necessary fact is going to be, the prices will be wrong because you don't have sufficient information and sufficient reaction time that you can really substitute for a market in a regulatory process to get the prices right.
All right. Now, this seems to me to be the sort of really important fact here. Now, what does this mean that we should be doing in this circumstance? Well, it seems to me the very first thing we should be thinking about is maximizing the probability over the intermediate run, that is to say the next three to five years, that somebody will want to do facilities based telecommunications competition in large cities, or medium-sized cities in the country. That is to say, our goal should be three to five years from now, every metropolitan area with more than a couple of hundred thousand people in it has some facilities-based competitors. Facilities-based competitors can be any technology. It can be add-ons to cable systems, it can be wireless systems, it can be literally anything, but the crucial issue is, is this capable of providing ordinary telephone service at a price that is comparable to a remunerative price, a price that recovers costs including a reasonable profit, for wire line telephone service, and we really shouldn't care what technology people use, because we, as consumers, probably aren't going to care about the technologies if they're comparable in quality and cost. So that should be the objective.
Now, what can get in the way of achieving that objective? Well, the obvious point of the current reality is, one thing that can get in the way of it is interminable regulatory proceedings, and replaying the history of entry in long-distance, where the apocryphal story is true of the first $100 million that MCI spent getting into long-distance, $80 million of it went to lawyers. And that's precisely what we're replaying right now in local service. So that's sort of the obvious point. Why should it cost you hundreds of millions of dollars for lawyers and consultants to get into the business. So that's the first point.
But beyond that, the strategic points, the strategic purposes of the players in the game are for vertically integrated, comprehensive service. Whether that's right or wrong, it could well be that everybody currently who studies this business or who is in it, is wrong about the right structure of a telephone company in the 21st Century. When we deregulated the airlines, we were completely surprised by the development of the hub/spoke airline system. The guesses about what the deregulated airline industry would look like were completely wrong. The same thing could be true in telecommunications. But right now, the strategic point of the players is complete, integrated, vertically integrated services.
What the BOCs want is not just to be in the telephone business, they want to be modern, comprehensive, telecommunications providers, including Internet access, including high bandwidth activities, and all the rest. That's a perfectly reasonable business objective, they want that very badly, just like Bill Gates wants to be in the same business. And so there's a strong incentive on their part to pay a reasonable price to get into that, and that reasonable price is to accommodate competition. And the way to do that is to say, until there are two facilities based characters competing with you, you can't pursue the strategic policy.
And that's what is the bottom line for why Bob and I have proposed what we have.
MR. GELLER: I believe that the act was well-intentioned, had an excellent purpose, and that purpose was stated to be pro-competitive, and don't laugh, deregulatory. Obviously, as Bob said, since you're starting with monopoly, you have to remove the barriers and you have to have effective interconnection, and it is a matter of regulating, of managing the transition, and transitions are always very difficult. The objective at the end of it was to get rid of the economic regulation, and they gave the FCC the power, therefore, to forebear and, in fact, told them every two years look to see whether you should get rid of these regulations.
Now, almost three years later, 33 months, if you look, the technology and the market are still tremendous and dynamic, but the policy which was supposed to get everything out of court, get it moving, where you had people not fighting with their lawyers in these interminable proceedings, but in the marketplace, the policy is a mess. It is tied up in courts, and other are a number of other areas.
And if you ask why, first, a minor point that I'll get rid of right away is that the act was terribly drafted. You could not imagine a worse job if you went about it. The reason for it was because of the enormous pressures from all these interested parties on Congress, but still unbelievable. You can look at the jurisdictional issue, and it really can go either way reasonably. You can have the states as laboratories carrying out these policies, or what I would prefer, you can have a federal captain and the states then having to do the heavy rowing, but implement what the federal captain wants. They left it so much up in the air that the Eighth Circuit is not off its rocker in what it did, and it's now in the Supreme Court awaiting decision.
When you look at the act, you can reasonably argue that there are two forms of resale, even though it doesn't seem to make much sense, wholesale resale, and then another form called UNE platform resale. And that's up in the Supreme Court. The act was supposed to emphasize negotiation, and then did something called pick-and-choose, which utterly undermined any idea of negotiation. And you get to the complaint, you're supposed to go to a federal court, but if you don't like it, maybe you can go right back to the FCC, which makes no sense. So, that's the first point.
The more important point is the flawed policy. And here I'm in agreement with what Roger has said, so I can be terse in my five minutes. The first point is that it is enormous micromanagement. As Roger pointed out, it's extraordinarily difficult to try to figure out what the proper prices of unbundled elements should be. And here you had to do it for all the elements of all the ILEX, and it's a tremendous undertaking.
The second thing is, the second flaw, and it's one Roger has already emphasized, is that the act and particularly as construed by the FCC, the Hunt FCC and even this one, is all geared to retail price competition based mostly on the UNE platform that I referred to. That's a price administered and plucked out by government. It's called government cartel management. It may get you benefits for the consumer, but it's not stemming from any market competition, it's really stemming from the government saying, we're going to make these efficiencies that we find on the following prices available to you, the consumer.
The emphasis, I'm in full agreement with Roger, if you want to get to this economic policy nirvana of deregulation, you have to get facilities based competition. Other than that, you're going to be regulating the ILEX elements, especially, of course, the local loop, forever, if it's all dependent upon that. And here I think that both the act, and particularly the FCC went off base in its failure to promote facilities based competition in order to get advanced telecom capability.
The third place that's flawed is in what's called the 271, when do you let the RBOCs out into interexchange? It is not unreasonable to use a letting in/letting out process as a kind of form of equity, a carrot. The problem there was that if you proceed in that fashion, you have to have a coherent standard. And I think the standard that is adopted is flawed. I don't like the standard proposed by Bob at all. We'll get to a discussion of that, but I think that if you adopt that standard, you will simply be in interminable proceedings forever about whether or not there are two out that are capable of rendering service. In my opinion, the standard ought to have been what Balma (sp) would say contestability. And that's all you could hope for.
The real problem here, however, and we'll discuss it further, is that what's hung up all the 271s is not what's called OSS electronic ordering, but electronic ordering in order to get this UNE platform, this big reduction off retail price. And, the RBOCs, quite obviously, are fighting that to the end. It's up in the Supreme Court. So, we've had no progress for years. And until we resolve that, nothing will move forward. So, once again, you have flawed policy.
If you ask, what now, what do we do now? I think we'll get into the discussion of that later, but what we first have to get rid of are the uncertainties. The Supreme Court will get rid of a lot of them. I'm sorry that the court is the one called upon to do that. It should have been done by Congress. It should have been done in a more appropriate policy-making fashion. The court is not the place to decide jurisdictional issues between fed and state, to decide the policy issue where there should be the UNE platform or whether that platform actually thwarts facilities based competition, none of those issues are appropriate for the Supreme Court. But that's where it's going to be decided.
Once it's decided, I think as a pragmatic matter, we have to move on. And we can get into a discussion of it, but it is my hope on that that there will be compromises, compromises forged by states like New York with the assistance of the Department of Justice, and while those compromises are not optimum, at least we'll be done and we'll be moving on to getting some actual decisions in these areas.
I'll stop there, and await the opportunity to flesh all these things out, flesh it or flush it, in the further discussion.
MR. CRANDALL: Well, I'll try to flesh/flush some of this out right now.
(Laughter.)
MR. CRANDALL: When I hear people talking about the Telecom Act, sometimes approvingly, although there's no one up here, maybe Bob would be the exception, talking all that approvingly about it, I think of Joe Stiglitz, one of Roger Noll's erstwhile colleagues of Stanford University Department of Economics, a brilliant economist, who was asked to give some lectures on what's going to happen now that the Soviet Union has fallen and socialism has collapsed in Eastern Europe. And as he began to think about it and think about it and prepare these lectures, rather than saying, well, this shows you the triumph of the free market, what he did was to cite 650 of his own journal articles showing why private markets fail, and how if we only did it right, we would have a much better result.
I think after, let's say, conservatively, 82 years of regulation of telecom, which I would claim is an absolute abject failure, now, we're going to have a very regulatory act which is going to get it right. We're going to ignore the history of all other regulatory exercises, some of which Roger went over in his brief remarks. That history, briefly put, is that whenever we deregulated an industry, we're talking about transportation, energy, even I suppose terminal equipment and telecom, or maybe long-distance, though long-distance is still not totally deregulated, what we've seen, and this is detailed by our colleague, Clifford Winston (sp), in a paper a few years ago in the Journal of Economic Perspectives, is that the benefits to consumers far exceeded anything that anyone would have predicted ex-ante, before the deregulation. And the reason was that nobody could predict from the way regulated firms behave how the market would unfold under deregulation. Roger gave you the airline hub example.
But also the history of this is that fools rush in. There's a tremendous amount of entry. There's a wave of bankruptcies, there's extremely volatile prices for a while, prices go up and down as they do in unregulated markets, but particularly in markets where there's a lot of ill-advised entry, such as there was into trucking, and even into airlines. And prices are quite unstable. But in the long-run, prices fall substantially more than anyone expected, because new technologies come into play, people find better ways to do things, the amount of inefficiency caused by regulation is reduced, and you get a much better working of the market.
Now, I was going to have some slides up here, some overheads, but the speed of communications between Brookings and the Mayflower is much slower than 56 kilobits per second, or whatever, so here it is. That bright light there was a new technology for overheads. But, I have some copies of these I made on a printer which, unfortunately, only prints one per minute, so I could only do about 25 copies. But what this essentially shows is what's happened to the real price of telephone services according to the Consumer Price Index over 13 years. And what you see is a downward sloping straight line, with a slope which hasn't changed much from about 2-1/2 percent real forever, and that includes the period since 1996.
One of the objectives of the Telecom Act was to bring us competition. Competition brings us volatility. But clearly, I would argue that the writers of the act didn't want that volatility. What they wanted was a deal between the long-distance companies and the RBOCs in a way not to roil the waters, as Roger has suggested.
Keep in mind that this is an industry that was regulated for a very long time in what we call cost-based regulation. But, despite that somewhat misleading moniker, no rate resembled a cost of service. That is, we don't — as a matter of fact, the regulators didn't even know what the cost of service of individual services were, and have had to scramble since the highly prescriptive '96 act requires them to begin to set prices on the basis of cost. And so there's been a huge business among younger economists, and then Roger and myself, who have run all of these models, to try to estimate what the costs of providing telecom services based upon last year or last decade's model really is, and that's going to be the basis by which we regulate into the future.
But still, none of these prices has changed. The price of residential service is kept exceeding low, while the price of using that service is kept very high relative to its cost. We don't know what the cost of using your telephone are, but most of the estimates I have seen lately would suggest that the cost for your sending out a voice message anywhere in the world is probably somewhere between 3 cents and 5 cents a minute at most, and falling like a stone. That doesn't include the cost of calling you at night to try to market the service to you. But the current system makes sense only if you believe that consumers really want a telephone that they can polish and look at, and occasionally pick up to get telemarketing calls, but don't want to use it. If they use it, they pay like hell for the privilege of using it, in order to subsidize those people who don't. That is the system we have today.
Were we to move with much greater alacrity as we have in other deregulated industries towards total deregulation, as we did essentially in trucking and in airlines, deregulating within, say, five years totally of the passage of the statute, there is some risk. There is risk that the incumbent telephone companies, local telephone companies, would raise local rates. They might even raise local rates as high as cost to residences, or they might raise them substantially above cost. However, the cost to society of that happening pales in significance to the cost of the current system. Most estimates of the cost of mispricing under regulation run $15 billion or more in today's dollars just from the mispricing. That doesn't include all of the impediments to development of new services, which could be much greater given estimates of what it cost us to delay cellular, what it cost us to delay voice mail, and so forth. So, the cost of allowing local monopoly to exploit it's local monopoly, given that there's almost no price elasticity of demand, is very close to zero. It's very small relative to this $15 billion a year.
But now that I've made Roger a little angry, I'll make him even more angry, I would say that we've already met his test for two facilities based carriers in every market, and it's called wireless. Fortunately, there is one telephone service that is not regulated. For many years, wireless was regulated only in the following sense, in its wisdom, the Federal Communications Commission decided we should only have two carriers in every market, with no possibility of entry of a third until someone called Nextel figured out a way to slide in from another spectrum allocation. But the rates weren't regulated. As a result, rates stayed — I have another slide about that, but where is it. You can't see it very well either, but what it shows is that for many years, cellular rates declined at a little faster rate, because the technology is a little faster there, at about 4-1/2 percent a year. While it was a two-firm duopoly.
But since the introduction of competition in 1996, it's now begun to fall at a rate of about 15 to 20 percent a year. And, in fact, the price of wireless service is falling so far that some, including myself, have just decided to substitute a wireless phone for my long-distance service. I can get all the calls I want to make all over the country for 10 cents a minute now. And, in fact, AT&T, who is the third in with this service, has begun to experiment with using just your wireless head set as your second line in a town called Plano, Texas, where it has a lot of spectrum, the Dallas-Fort Worth area, beginning to compete directly with the local wire line carrier with wireless.
If we were to deregulate and just let it go, which is what we should have done with the '96 act, we should have phased in deregulation over a period of time, and then just let go, allowed some resale, allowed maybe the unbundling of the loop, and then after a date certain, four or five years, just let it go, this wireless competition would develop even more rapidly. We now have at least nine allocations in every market, and FCC has wisely decided, because of the needs of the federal government for budget monies over the period '93 to '96, to continue to auction off more spectrum and allow it to be used for wireless purposes. There could be as many as 10 or 12 carriers in every market, and there could be six or seven national carriers going head to head, with those prices falling not to 10 cents, but my guess is in a couple of years you're going to see plans at 5 cents a minute, and at that point the local loops is fully contestable, and we can get out of this mess.
Now, that doesn't mean to say that we aren't going to continue to argue as to human capital of all of this, and, boy, I really am jealous of Bob because he has both an economics degree and a law degree, just think how much the Telecom Act has increased his value.
MR. LITAN: It has.
(Laughter.)
MR. CRANDALL: Anyway, this, I think, can come to an end relatively soon, but I'm not sure that we can bring the Telecom Act of '96 to an end, but there's even hope at the end of the tunnel there, because I'm told the only way we can reopen the '96 act if there's somehow, leading up to the 2000 election, there's a need for lots of campaign contributions. In which case, then maybe they'll open it up again, and we'll have another food fight like we had leading up to the '96 act.
MR. PRESSMAN: Okay. Well, we just heard some very divergent views about what would prompt competition. First, let's go back to Bob or Roger and say, why shouldn't we just let it go?
MR. LITAN: Let me jump in with that. First — well, three quick observations. Number one is, this is a really hard problem. This is not like airlines or trucks, where you've got lots of competitors out there. We have monopolies, all right. And that makes it different than all the other examples that we're talking about. And we're trying to wrestle with, how do you get competitors to people who have a lock on the entry point to the consumer. They've got the bottleneck, that last mile. And that's true in the long-run, I agree. We're going to get competing last miles, wireless, cable, and so forth, but in the meantime, we still have this problem.
Now, the second point is, is that if you just let it go and deregulate, I firmly believe that what's going to happen is that all the lawyers and the economists who are now at the FCC are going to move overt to the Justice Department. And we're going to have another antitrust case. In fact, we'll probably have four or five of them. We have a lot of very well-heeled long-distance companies that can afford to bring their lawyers and economists to the Justice Department and argue, hey, we're not getting interconnection, all right, investigate this, investigate that. We will have more Microsoft-type antitrust litigation. And it won't end. So, I don't think it solves the problem. In the meantime, we do have the real problem of consumers getting ripped off.
And the final point about wireless, I will agree with Bob, actually, that we are making headway, and that eventually, it may be three years from now, that wireless will be so competitive with land line, that Roger and my test will be met. In fact, I'm a perfect example. We just switched to the service that Bob is talking about at home. My wife, to my consternation, two days ago says, hey, we just bought this AT&T service. It costs like $90 a month, and I can call anywhere for 10 cents a minute, or whatever. But, in any event, we're an example, all right. And as I think there are more and more people that sign up for service like that, we'll get there. So, it may not even be three years. It may be one year, or maybe six months, or whatever. We're headed, though, to a land that we described.
And I guess the finally point I would make of what I would do different, I was the negotiator for the Justice Department on the so-called Ameritech deal that would have, on a trial basis, have allowed Ameritech to go into long-distance. This was back in 1994-95, and my firm believe is, if the act had never passed and we had had more Ameritech trials, we would have a lot more competition today.
MR. PRESSMAN: Henry, do you want to address the issue of whether we should just let it go?
MR. GELLER: There would be nothing wrong with let it go. You could choose any date you want. The act is full of deadlines like that, three years for one-stop shopping, three years for separate sub. You could choose a — and five years or the square root of five years or whatever, and just say, that's it. We're going to declare victory in Vietnam, and leave this. And probably Bob Crandall is right, we'd be better off.
It's not going to happen, though, and you know it's not going to happen. That's why I keep returning to, what are you going to do? You can't depend on Congress at all. Congress is an abject failure here. Even to get the contributions, Bob, they will not go back into this mess. And you know they will not go back into it.
MR. CRANDALL: Remember that prediction.
MR. GELLER: And, you know, it really is amazing when you think about it, they really screwed upon the jurisdictional issue, and they knew it eight months after the act was passed when the Eighth Circuit issued a stay. Any self-respecting Congress would say, oops, it's ours to decide. It's a difficult policy issue between feds and states. Let's repair it. Either way, I told you what I would do, a federal captain and so on, but whatever, let's repair it. They don't even dream of going back into it. They don't go near it. The administration doesn't say, hey, we're sending up legislation you've got to resolve, they know it's useless. So, forget about Congress. Congress does send messages, they write letters. McCain has written 35 letters this year already. He introduces legislation saying, one year and out on that, but he knows it's not going to go anywhere.
If we're going to make progress, the only way we can make progress, God help us, is the FCC.
(Laughter.)
MR. GELLER: Well, but it is, it's the only way we're going to do it. I think the FCC is going to win in the Supreme Court. I don't like the UNE platform, I think it thwarts facilities based competition, and the reason why it does is that if you really make something available that is on the basis of Telric (sp) and the hypothetical network, and you make it available very cheaply, the RBOCs argue or the ILEX said it's 50 percent, 60 off retail. Maybe it's only 40, I don't know, in the densely populated. But if you make it available, you really are saying, why should I build something if I'm MCI or AT&T or Sprint. I'll accept that. I'll go in there, I can do one-stop shopping with it, I can do marketing with it, and I can pour my money into the future, which is wireless. And that would be a very sensible business one for them to do.
And the reason why I say you're thwarting them is that if I were AT&T buying TCI and trying to convert all that and pour billions into it in order to get local competition, and you give me that platform at 40 percent off, I'm going to start reconsidering what I should be doing. And instead of pouring the billions in and trying to do facilities, I'll accept that.
It also interferes with cable systems, Cox is pouring money, billions of dollars in. They could reach, if you allow the UNE platform to be out there, you could have a tsunami of marketing by AT&T and others, they're marketing already and billing already, and the result of that is that the cable industry has opposed, very strongly opposed, the UNE platform. And Time Warner has said that their effort in Rochester worked, but they're not expanding it until they find out what's going to happen with the UNE platform with retail price competition. Teleport before AT&T took it over, also said, don't do it.
I've digressed, but while I don't like it, if the FCC wins under Chevron, and I think they will, remember the Supreme Court really isn't going to know what to do with this stuff, and I think there's a tendency to go with the agency on the Chevron basis, and if they do win, the question is what happens then? And what I would hope then is that at the least you phase out the UNE platform. You can still have the emphasis on OSS electronic ordering. You can still say resale should be available. You can still make the local loop available at a forward looking price, but at least you say, as New York, the compromise with the aid with the Department of Justice was saying, that the platform ends in four years.
And when you look at it, it makes sense to end it. It seems to me crazy to say that we have to make available switches for AT&T, MCI, Sprint and the rest. Poor old AT&T can't buy switches, PCS does, everybody else does, why are we making transport and switches available to AT&T indefinitely?
MR. PRESSMAN: Henry, let's let Bob come back and see if he wants to respond whether the structure —
MR. CRANDALL: (In progress) — Exhibit 1 against all these charges about denial of interconnection would be that I don't see any problems that AT&T Wireless, Sprint Spectrum, Airtouch, Western Wireless, Nextel are having in getting interconnection. In fact, what we should do is just have the termination of traffic. And there's been no problem with that. There's been no claim that they haven't been getting equal interconnection. And, in fact, now with reciprocal compensation, maybe one of the few good things the act did, the price of interconnection between wireless and wire line, which is seamless and has very little problem today, has fallen to about an average of .5 to .7 cents a minute. That's one of the reasons the prices have fallen. Not the only reason, obviously, because they were at 50 cents a minute, prior to the entry of the third, fourth, fifth, sixth, seventh carrier.
So, we already have interconnection. Interconnection is easy, as long as we don't tie it up with all of this unbundling and this UNE platform stuff, the inside baseball that Henry is talking about. I guess you assume everybody here is in the game. I thought they were here because of their keen intellectual interest in the new area.
Let me also point out one thing I didn't point out as to why we're not getting entry, and why the two carrier facilities based carrier thing for 50 percent of households isn't going to work any time soon. This is another one of my slides, which I'll put up in this new technology. This shows you, those in the back can see some red bars. There actually are two sets of bars on this slide. The red ones reflect the number of new lines added by competitive carriers that are business lines. The blue bars, which I'm sure you can see very well in the back because they're so enormous, they're about 1/30th or 1/40th the size of the red bars, are the number of residential lines that have been added by competitive carriers.
That is, in other words, the new competitive carriers have not gone after the residential market at all. There's a reason for that. One, of course, they're dispersed and they're expensive to reach, but the other is that the current prices subsidize residential service out of these business rates. Until the state regulators change that, and they show no inclination of doing so yet in most states, a couple of states have started, that's not going to happen. And, as a result, we're going to continue to pay this $15 billion charge year after year while we wait for Bob and Roger's two carriers to enter.
MR. PRESSMAN: Let's pick up on that.
MR. LITAN: Let Roger respond to it.
MR. NOLL: Three times now Bob has said residential customers are subsidized. What he has not said is, that's only true in about 25 percent of the country. It is the case that residential users pay something less, substantially less, maybe 30 percent less than the average cost across the country of residential service. And that's because if you live in a small town or a rural area, where average distances of customers to switches are very long, the average cost of service can be $50 to $100 a month, and that's all rolled in together in a single state — usually it's a state basis. They have more or less statewide rate averaging. It is not the case that the current combination of the state plus federal monthly service fee for residential consumers who live in metropolitan areas in relatively high dense residential areas that that price is below the cost of servicing them.
I mean, I think the real reason that Bob's story is true is the nature of the demand for services of businesses versus residential combined with what he says is absolutely right, the subsidization of the rural people is coming from business service rates that are probably two or three times cost. And if you're a business person, Bob is right in this sense, if you're in a business, and it's going to cost you $15 a month to serve customers, are you going to go after the customer who is currently paying $15 a month, or are you going to go after the customer who's currently paying $50 a month? And the answer is, you're going to go after the one that's paying $50 a month with your first investments.
Secondly, Henry's point, why in the world go after these residential consumers on a facilities based basis if you think that very soon the FCC is going to come up with an unbundled element regulatory rule, interconnection rule, that's going to create a telephone cartel, where you won't have to compete because you'll be guaranteed all your cost will be recovered by a regulatory rule. And that's the point about Time Warner in Rochester. So, I mean, I think that Bob's picture is right, his reason for it is the very problem of the act and the regulatory proceeding.
I mean, I'm sympathetic with Bob's statement that if we could just get rid of regulation, maybe things would play out better. I suspect they would, but he also has not said one other little point, which is, in the current structure, without legislation from Congress, you can't get rid of state regulation. And state regulation is extraordinarily protective of indigenous companies.
MR. CRANDALL: That means I can give this talk again.
MR. NOLL: That's right. So, what Bob is really saying is, that with only one regulatory commission, namely the FCC, now where the action is, that suppresses the demand for economists, and with it being now moved to 51 different fora all the way across the country, you know, just imagine what the demand for economists and lawyers is going to be in that circumstance.
MR. CRANDALL: I'm not quite as optimistic as Roger, though. Are you telling me that the ICC would have been different if they just had more economists? Come on.
MR. PRESSMAN: Let's see if there are any questions out in the audience. There is a wireless microphone.
Henry?
MR. GELLER: I just want to very quickly say, I apologize for taking it into inside baseball, whatever it was. But the reason for it is that unless the Supreme Court gets rid of the UNE platform against this thing that is not moving in the direction of facilities competition, we are going to be stuck with it because Victoria's messenger isn't going to come riding, Bob, and that's Congress, and the only one who can do it. And, therefore, that's why I think that we have to figure out, well, how can we phase it out is the best thing. And there, the Department of Justice has been somewhat helpful. It's models, it isn't what you want, it isn't what I want, but it's in the real world.
MR. PRESSMAN: Let's see, we have a microphone over here.
QUESTION: The question to Bob. I'm with Ameritech, Bob, and I was at the press conference when we at Ameritech agreed to do the trial which, as you know, never happened, and we are now, in my view, five years later, where we're still debating the same subjects. I'm totally baffled, and I guess since I got Cs in economics, I'm totally baffled by your statement that we can continue to charge GM or Ford or K-Mart or Dow at an excessive rate or a high rate, and pretend that we're going to get competition in the Detroit area for residents exchange where there's a lot of lifeline service. And I just go back to the whole debate on the Hill about the metrics test. It sounds to me like you want to pretend that we can continue with this pricing structure that Bob so well described, and pretend that we can continue to watch people, like AT&T buy Teleport, build networks, Roger, in Chicago, build them in Detroit, build them in Milwaukee, build them in Columbus, and pretend that eventually we're going to get to some nirvana where two competitors will serve 50 percent of the residence exchange market in the lower east side of Detroit. I just don't see it.
MR. LITAN: I want to be clear, I'm not saying that the trigger, and Roger saying this too, it's not that the trigger that we have to wait for 50 percent of the market to actually be served, in other words signed up, by these other two competitors, just that the other two be capable of handling requests for service by 50 percent of the market. So, in other words, if you've got two pip-squeaks there, who are basically totally incapable of handling orders, that wouldn't be enough for us. But, for example, if you've got an AT&T and an MCI in a local market, that would satisfy the test of two. And then I'd say let her rip.
And back to Ameritech, I can't emphasize how strongly I believe that if we had done the Ameritech deal, and probably had several more children like it, we'd all be better off today. I just firmly believe that. And I think it's just an unfortunate fact of life that everyone was so desirous of getting a scout, namely a legislative bill, that we moved the whole attention to the Hill to try to argue for a bill. And I think it short-circuited the process.
MR. NOLL: I also think that in a real world in which you use markets, there would be a competitive bidding process in Detroit who provided the lifeline service. And that would make it attractive to anybody, not just a regulatory requirement on behalf of Ameritech.
MR. LITAN: By the way, the answer to your question, we should bring out the FCC point of view here, and actually it's a point of view advocated by others in the industry, and that is, you can still have the subsidy system, but what you do is, you have portable targeted subsidies, where we estimate the cost of serving every residence in the United States, and then provide that as a portable subsidy, which any competitive carrier can get if he goes after that. Now, we're going to import — we have a lot of very bright economists at the FCC right now, but the notion that they can pinpoint exactly what the cost of serving all these people are, and do it with such precision that we're going to have a neutral system of subsidies which will generate competition, strikes me as something which will revive belief in the Goss plan.
MR. PRESSMAN: More questions from the audience, and if you could please identify yourself before your question, thank you.
QUESTION: Christina Nastrick-White with Canter and Associates. I have two questions. The first is, several states have moved forward and precluded municipal utilities from providing telecom services. What impact do you think that will have on the development of competition? And the second is, what advice do you have for Congress as they approach electricity utility restructuring? It sounds very similar to this.
MR. NOLL: Why don't you deal with the second one, Bob, you haven't said anything about Congress yet.
MR. LITAN: Advice on electricity, actually, no. I'm going to pass this to Crandall. Crandall is writing a book about electricity dereg. And on municipals, my gut reaction is that whenever the states try to preclude somebody from getting into a market, that makes me nervous.
MR. CRANDALL: Well, electricity and telecom are the two areas where, as opposed to earlier exercises of deregulation, where we have an extremely complicated structure, typically, for supposed deregulation. There's a regulatory structure. And, many times, the cost of regulatory excesses of the past, called stranded costs, if they are, indeed, that, or whatever, just mistakes of the past made by utilities, are loaded onto the distribution charge, which of course is what we're doing in telecom. That is, we put all the regulatory mistakes in using your telephone and keep the price of local service low.
Now, the second question as to municipal provision of telephone service. Living in the District of Columbia, I have a great hope that that will provide a wonderful telephone service organization. But my guess is that while it could provide another player, that it will not be the most efficient player in the world. And I guess maybe Roger who studied the financing of sports stadiums out of property taxes could describe what might happen if you funded telephone service the same way.
MR. NOLL: Let me rewind the tape in answering the question, because there's a technical fact out there that is what's driving this discussion of electric utilities. The technologies have now been invented and are in the process of beginning to be implemented to replace meter reading activities with telecommunications. The problem has been solved. It's a low cost alternative to having a little meter reader come around and read your meter once a month. And so, once utilities, whether municipal or investor owned, have in place a telecommunications system for reading meters and having all their billing process be made electronic, the incremental cost of using it for services, like telecommunications, is really quite low.
And, hence, the prospect that electric utilities can be a serious facilities-based competitor to telephone companies is real. Now, we don't know yet what the dominant technology is going to be. It turns out, my son-in-law is in the wireless version of this, and there's also a wire line version, where you solve the problem of the interference between the electricity and the telecommunications and put it on the wire. We don't know yet which is going to win. But one of those two will probably produce a circumstance not too far in the future where, whether you have a municipal utility or an investor owned utility servicing you, you will, in fact, be able to buy telecommunications service. But that's only true if these states, you know, where you think federal regulation is bad, let me introduce you to the states, if they don't get in the way. And, boy, do they want to get in the way, because they like dividing things up in monopolies, because they get the same kind of political campaign contributions that members of Congress do, but it's much less visible, because they're not covered, state legislatures aren't covered like the federal ones are by the press.
So the reality is, I'm totally in sympathy with the question. I think it is ridiculous to prevent anybody from going in the market. I think the Los Angeles Department of Water and Power, despite the fact that it's a publicly owned corporation, is perfectly capable of being a telephone company. And if that's the best option we have of getting a facilities based carrier in Los Angeles, I'm all in favor of it.
MR. PRESSMAN: Other questions.
QUESTION: Bill Lake at Wilmer Cutler. Most of your comments so far have been aimed at sort of plain old narrow band telephone service. But we now have the cable companies and the local exchange carriers racing to put in broad band transmission facilities to the home. And I wonder if — this is a question for anyone — you could address yourselves to what the regulatory regime ought to be for that competition, and in particular whether the telephone companies should be required to unbundle their new broad band facilities, and whether the two competitors should be subject to different regulatory regimes because of their different parentage?
MR. PRESSMAN: Henry.
MR. GELLER: As you say, cable now is starting from zero, putting in cable modems, and broad band, and there is no regulation. And on March 31st, there will be no regulation at all of the rates of cable of next year. When you get to the telephone company, and when they're starting from zero also trying to do mostly digital subscriber line, and here if they did it today, they would come under the entire regime of unbundling, wholesale, resale, and so on.
The FCC finally has recognized that it doesn't make sense, and has put out a proposal, a notice of rule making, where if the telephone companies went to a separate sub, they would be regarded as what is called the CLEC (sp), and therefore they would be totally deregulated. They would take service which would be, in effect, getting the local loop, the condition local loop, and the CLEC would then put on its own what's called D-SLAM, and other electronic equipment. It would put on its own electronic equipment.
I think that the FCC will move to do that. There are arguments that the separate sub is inefficient. Ameritech believes, or one of the RBOCs think that it's perfectly all right, that they can do it using a separate sub. When an RBOC goes into long-distance, if they ever do and I live long enough to do it, they have to use a separate sub. But that's what's involved. The legal issues involved are very interesting. But the answer to your question is that there shouldn't be the is asymmetric regulation of the two. It makes no sense at all. It's an area where both are starting from zero, and there should be no rate regulation. The only thing you have to do is make sure that the loop is available to people who want to use it, like Covad (sp) and North Point and others.
MR. CRANDALL: But the premise of Bill's question, though, is whether there should be unbundling requirements. And, in fact, it's probably not a major issue. I think the separate subsidiary issue is a much bigger issue. And the reason is that the current technology for delivering high speed service over your telephone line, use the telephone loop that Henry was talking about, the wire from your residence or business to the central switch, and that already must be unbundled anyway under the law. A large part of the additional investment would be terminal facilities in the household or in the business in order to accept this digital service. And then there would be some additional investment, presumably in a separate sub if the FCC gets its way, which would not have to be unbundled, and it's probably not terribly important anyway relative to the rest of it. So, I'm not sure that's the issue.
The real issue is, should you require a separate subsidiary, and if you do what if the telephone company then starts essentially transforming all of its traffic, as AT&T said it plans to do — it's plans may have changed since the last time I read this — and go to packet switching for all types of services. Run everything through the separate subsidiary through the packet switches, and let the circuit switch technology just sort of slowly degrade and fade away. Then they'll be screams, I suppose, from Aunt Mabel who lives in North Dakota who finds that she has to wait a couple of seconds in order to get a dial-tone.
QUESTION: Well, Bob, let me rephrase the question a little bit, because while unbundling is required for the telephone company's broad band offerings, it's not or it might not be required for the cable system's broad band offerings, and that may create an unlevel playing field. So, how should we approach that?
MR. CRANDALL: Well, I think a great idea would be to extend this regulatory madness into some other area. That would be a really great idea. We've already stubbed our left toe, let's not do it to our right toe.
MR. GELLER: But Bob is right that the loop is made available, it's made available under general policy. The real question there is whether you're going to use a UNE platform at Telric price and make broad band then available where people don't have to make any investment, take no risk at all, and there you run into the same problems that I said before, you really are discouraging then the ILEX from going into this field. You are also being very unfair to those who are facilities based, like Covad and North Point, who put on their own electronics, because they would be up against an AT&T, or MCI, which says, just give it to me. I don't have to take any risk. I don't have to do any investment. I'd like it at Telric.
MR. PRESSMAN: More questions in the audience?
QUESTION: Yes. Jeff Bartaff, CBS Market Watch. None of you seem to think that the Congress is going to revisit the issue and yet you all think the 1996 act was politically constructed. Given that situation, though, you've all said what you would like to see happen, but what do you think will happen? What does this mean for the consumer, at least in the near-term?
MR. LITAN: Well, I think Henry has already forecasted what he thinks is going to happen, that the FCC is going to win this pricing dispute at the Supreme Court, and then we'll go forward with what's called the UNE platform, which is making parts of the platform available to other people to hook in at what he thinks is the wrong price, and actually we have a different pricing mechanism that Roger and I propose in our policy brief. But, in any event, that will be irrelevant if Henry's situation comes to pass.
I guess my view is, I may be a little more sanguine about the technology than Roger is, and maybe less sanguine than Henry and Bob are, but I think ultimately as with most things in life, the rules and what Congress does and the regulators do ultimately will be irrelevant. And I do look forward to a day early in the next century when a lot of these other technologies will make a lot of these debates meaningless.
MR. GELLER: I don't disagree with that. I think the technology can't be stopped, the market can't be stopped, and it will overwhelm all this nonsense. But the question is, what's going to happen in the next year, the year after, the year after that, the next five years, when that hasn't happened?
If I'm wrong and the Supreme Court knocks off the UNE platform, then from my point of view, and I believe the public interest, we'll live happily ever after. That's gone. It's delightful. And all we have to worry about is OSS, support systems, electronic ordering with regard to wholesale resale, which is not a disaster area the way I think the UNE platform is.
If I'm right that the FCC does win, then, I won't repeat it, but as I said we have to get to something we can live with. And what I'd like to see lived with is that we run it out. We tell people it won't be available after four years. The problem you have with that is that it's very hard to take lollipops away from them once you give them out. And the FCC has been notorious if it sets up a whole scheme, when the time comes, my God, the people who have had the use of it begin whining, you have never heard whining of this nature. And so the FCC backs up and says, take another year, two years. But that's the best I can see happening here.
MR. CRANDALL: Well, I think the lollipops are being taken away. That bar chart I showed you from a great distance shows that the competitive carriers are taking away business lines at a rate of around 650,000 lines a quarter now, and it's growing rapidly, so growing to 3-4 million annual rate. At that rate, it's starting to take the lollipops away that are providing the cross-subsidies, and the prices will have to start moving somewhat towards cost.
As for the regulators not being able to stop technology, well, they can stop it in regulated firms, they can't in the unregulated firms and that's precisely why I think that wireless is likely to be an important player in all of this, because they are not regulated, and thank God there is no talk to bring about legislation to bring them under regulation.
MR. NOLL: I would say with regard to the forecast, assume the Supreme Court decision favors the FCC, I am more pessimistic. My view of life is going to be that some fraction of the American population really wants high quality Internet access. I don't know what it is. It depends on how much it's actually going to cost when offered on a widespread basis, mass consumption basis. But if it's the case that it's something like 30 or 40 percent of American households want high quality Internet access, then my forecast is going to be that there's an extraordinarily competitive, high quality Internet access cum telephone cum cable television service out there that is highly competitive, probably five to 10 firms in large metropolitan areas providing it, because there really are no economies of scale at all in it.
And that probably everyone in this room five years from now or 10 years from now falls into that category, and you're going to be extremely happy. The majority of consumers are still going to be buying ordinary telephone service, and ordinary cable television service from a monopoly provider at prices that have built into them the inefficiencies of regulated monopoly, and I don't see any way, with the current act, to get out from underneath that.
So, my forecast for the year 25 is that we are all happy, but the majority of people in the country aren't happy. And that is political dynamite, because that can cause all hell to break out, and another Telecommunications Act of 2004 that is even worse than this one.
MR. PRESSMAN: All right. We have time for one more quick question right here, and then we're going to take a 15-minute break so that they can set up lunch in this room for the next speaker Joel Klein, go ahead.
QUESTION: Tom Lighthouser from Phillips Business Information. There's been a lot of criticism on the panel this morning about the criticism of the Telecommunications Act. But I'm wondering if maybe we're not being a little to impatient. Mr. Crandall's bar charts suggest that these competitive local exchange carrier industry is flourishing. And the telecommunications industry is kind of a big ship. And it might take a while to turn, but it does seem to be turning, and if you talk to people, executives at the competitive local exchange carriers, many of them are quite happy with the act because it's finally forced some of the incumbent local exchange carriers to allow interconnection on reasonable terms. How would you respond to that?
MR. LITAN: I have a quick reaction on the CLECs, or the competitive local exchange carriers. I think if you were to ask most of them, what would they rather do in life, continue to do what they're doing and building networks, or get big enough and then get bought out, I think you'll get an overwhelming answer for the latter.
I think ultimately, while we may have one or two CLECs that survive an become a nationwide business, but even that I'm not sure, I think the real chips in my view are on the major companies that have nationwide reach to provide essentially this major competition, whether it be electricity companies, wireless companies, long-distance companies.
MR. CRANDALL: And the reason they're happy with the act is because the act makes that hard to accomplish and keeps the price of business services very high while they just come in and take away the gravy.
MR. PRESSMAN: Thank you very much.
If we could have a hand for the panel.
(Applause.)
MR. PRESSMAN: Then we'll come back in 15 minutes for Joel Klein's comments.
(Break.)