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S. 1504 Senator Ensigns Big Gamble

By John Cimko


S. 1504, introduced in July by Sen. John Ensign (R-Nev.), aims to overhaul the Telecommunications Act of 1996 to restore Americas leadership status in global telecommunications technology and to ensure that federal law and regulations account for sweeping developments in technology.

Other proposals also are beginning to surface. The House Energy and Commerce Committee released a draft rewrite bill in September, proposing the same regulatory treatment for all broadband providers. Although action on telecommunications legislation before the end of the current Congress appears unlikely, some of the key players are starting to frame the issues.

S. 1504 takes a big gamble. The proposed legislation rolls the dice on the proposition that deregulating essentially the entire telecommunications industry (other than the provision of basic service) will enhance consumer choice, bring down prices, and serve President Bushs goal of universal broadband by 2007. As one economist (John Rutledge) claimed in a recent press report, S. 1504 is the answer to outsourcing of U.S. jobs abroad. [The bill] will trigger massive . . . capital spending on fiber optics and high-speed networks . . . . In addition to clearing away the regulatory underbrush, this legislation could add as many as 200,000 jobs to the American workforce and generate upwards of $600 billion of GDP, resulting in higher productivity and lower inflation and interest rates over the course of the next five years.

These predictions about the Ensign bill assume, of course, that deregulation is the best way to incentivize telecommunications service providers to invest and compete. But two issues may raise questions about whether Senator Ensigns gamble will work.

First, the bill assumes there is enough competition right now in the telecommunications marketplace to warrant the wholesale removal of regulatory oversight. The argument goes that, in the case of broadband (which the bill defines, rather broadly, as any service at 64 kbps or above), cable companies and the RBOCs are vigorously competing today, and maintaining a level playing field for these competitors (without requirements for non-discriminatory access to their broadband facilities) will strengthen competition, spur investment, and benefit consumers. The soundness of the bills assumptions hinges on whether what amounts to a duopoly in the telecommunications marketplace will actually produce the desired results. Will there be enough competitive pressure to drive RBOC investment in innovative broadband technologies that will boost speed and capacity? Will the ongoing march of mergers and acquisitions in the telecommunications sector undermine the assumptions about competition made by Senator Ensigns legislation?

A second issue involves universal broadband. The arguments of the bills supporters dont address the issue of whether unregulated RBOCs and cable companies will have sufficient incentives to bring broadband services to rural and low-income areas if there are no regulatory requirements or incentives in place to ensure universal offerings of broadband services. In fact, when we look at the scorecard of good news and bad news in S. 1504, we see that the bill might actually deepen the digital divide.

This is because the bill would hamstring efforts by municipal governments to provide broadband infrastructure. Specifically, any state or local government planning to provide broadband services would be required to allow private companies to bid on the project and to get the same perceived advantages (such as free or below cost rights-of-way or any preferential tax treatment) available to the government. If a private company makes a bid that is identical to the governments plan, preference would go to the private bidder. If there are no private bids, or if the government wins the bidding process, and the government broadband facilities are constructed, then S. 1504 would permit private companies to use the facilities subject to the same conditions as the government.

This is bad news for local governments. The National League of Cities is concerned that the Ensign proposal would block efforts to ensure that communications services are available to anyone, not just the chosen few. A growing number of local governments has reached the conclusion that one way to help President Bush meet his universal broadband goal is for local governments to bring broadband benefits directly to their citizens. The proposals in S. 1504, in erecting roadblocks against this municipal involvement, run counter to the Presidents broadband goals and seem indifferent to the digital divide between poor and rural areas and the rest of the country.

On the other side of the ledger, there is also some good news in S. 1504. For example, the bill prohibits network providers from blocking their subscribers access to competing VoIP services, and also promotes network neutrality by barring network providers from blocking their subscribers from accessing any lawful Web content or from using any lawful Web application. The bill potentially undercuts this latter protection, however, by providing that a subscribers access to Web content and applications is not guaranteed if this access would be inconsistent with the network providers service plan.

S. 1504 is an important step in framing the debate for rewriting the countrys telecommunications laws. As the debate proceeds, lawmakers and affected parties should focus on the gambles and trade-offs that have shaped Senator Ensigns proposal. IT

John Cimko served for fifteen years at the FCC, and currently practices law at Greenberg Traurig LLP in Washington, D.C. The views expressed are solely those of the author and should not be attributed to his firm or its clients. For additional information, visit the firms Web site at

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