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Technology Stocks : Newbridge Networks -- Ignore unavailable to you. Want to Upgrade?

To: Elmer Flugum who wrote (2649)	1/7/1998 5:56:00 PM
From: Tunica Albuginea	Read Replies (1) \| Respond to of 18016

len grasso, here is today's WSJ editorial on the possible outlook of the results of " judicial activism" in the Baby Bells recent lawsuit to overturn Telecom bill.I think this is positive for NN. * Judicial Activism May Lower Your Phone Bill By Robert W. Crandall 870 Words 6126 Characters * 01/07/98 The Wall Street Journal (Copyright (c) 1998, Dow Jones & Company, Inc.) A federal judge in Wichita Falls, Texas, ushered in the new year with a ruling that jolted the Justice Department and the telecommunications establishment. Judge Joe Kendall declared unconstitutional those provisions of the 1996 Telecommunications Act that bar local Bell companies' entry into long-distance service until the Bells pass a tortuous set of regulatory hurdles. The judge accepted a novel argument that these conditions, imposed only on the Bell companies, amount to an unconstitutional bill of attainder. Unless he is reversed, several Bell companies will soon begin to compete with long distance titans AT&T, MCI, Sprint and WorldCom. Regulators, antitrust officials and the Bells' potential competitors have all criticized Judge Kendall's ruling. But there probably would be no competition in telecommunications today but for activist federal judges. In the 1970s, a group of Chicago school economists began to push for loosening and even eliminating government regulation of industry. Congress was persuaded that deregulation would cause many industries' prices to decline, thereby easing some of the dreadful inflation of the time. And so the walls around the Civil Aeronautics Board and the Interstate Commerce Commission soon came down -- and airline, trucking and railroad rates quickly followed. The Federal Communications Commission, however, did not propose to abolish itself through deregulation. Rather, when the FCC allowed MCI into the interstate telephone market, it did so only for purposes of collecting cost data that would help in perfecting its regulation of AT&T, which it saw as a "natural" monopoly. Some economists at the FCC may have seen this entry as a Trojan horse for competition with AT&T, but its commissioners and Congress surely did not. MCI decided to challenge the FCC's restrictions, much as the Bells are now doing, through the courts. Under the leadership of its intrepid CEO Bill McGowan, MCI simply used an existing AT&T service to connect ordinary long-distance calls dialed by its customers at prices that were 50% below AT&T rates. AT&T immediately complained to the FCC, and the FCC responded by petitioning the D.C. Circuit U.S. Court of Appeals to block McGowan. At every turn, the court rejected the FCC's demand that MCI be enjoined from offering this unauthorized, competitive long-distance service. After nearly three years of litigation, the FCC admitted defeat, unable to show that MCI's entry would not be in the public interest. A less activist court might have deferred to the "expertise" of the FCC. MCI would have been remanded to its intended role as a collector of cost information for the FCC, and AT&T would have had no reason to behave anticompetitively toward it. After MCI prevailed in court, however, AT&T became very aggressive in denying MCI connections to its local customers, which MCI needed to offer any service at all. AT&T's reaction resulted in the landmark 1974 antitrust suit that ultimately dismembered AT&T. Had the FCC been able to persuade the appeals court to keep MCI out of the long-distance business, there probably would have been no antitrust suit. Perhaps there would still be no long-distance competition. This is not to say that the FCC is incompetent. The politics of regulation make it very difficult for any agency to release its wards to the mercies of the market. There is always some constituent interest to be served -- below-cost service to the poor or to rural customers, or "free time" on regulated television stations. Competitive markets do not permit, say, your local pizza delivery service to offer below-cost delivery to poor areas. Regulated monopoly markets do provide such opportunities, as long as the regulator keeps troublesome entrants from disrupting his plans. It is only when nettlesome judges disrupt these schemes or when academic economists, intent on returning to academe, take over the regulatory agencies that competition has a chance. Last year, for instance, the Eighth Circuit U.S. Court of Appeals overturned the FCC's most important rules for implementing local competition under the 1996 Act. The "interconnection" requirements were so complex that they slowed the move toward competition -- until judges removed that roadblock. In the present instance, the FCC and the Justice Department will argue that the time is not yet ripe for allowing the Bell companies into long distance -- that they should be given time to make sure that entrants into the Bells' local markets may also succeed. Justice may even be forced to make this argument if it decides to block the WorldCom-MCI merger on the (highly ironic) grounds that the long-distance market is still too concentrated to permit two large rivals to merge. And perhaps the Bells will have a first-mover advantage in offering local and long-distance services together while MCI and AT&T figure out how to gain access to the Bells' local customers. But does anyone seriously believe that regulation will carefully guide us to the competitive market ideal in this or any other industry? Regulators are generally hostage to political forces that make it difficult to open markets. A prod from the courts can surely help. Even * conservatives, fearful of judicial activism, might consider an exception for Judge Kendall's brand of activism toward stifling government regulation. --- Mr. Crandall, a senior fellow at the Brookings Institution, has served as a consultant to several regional Bell operating companies.