Fixing the telecom merger culture

By David Rohde, Network World |  Government

There’s a fair amount of excitement over the appointment of Michael Powell as chairman of the Federal Communications Commission.

One reason undoubtedly is his semicelebrity status as son of Secretary of State Colin Powell.

Another is that the new FCC boss is the first who quotes John Chambers instead of Alexander Graham Bell and talks about disruptive technologies more than universal service, qualifying him at age 37 for what the marketing geniuses at WorldCom call "generation d."

Powell’s getting a lot of advice from people who have access to a printing press. So I’m going to pile on, but not with the typical recommendation that he promote competition and deregulation. Most people who say this don’t realize the two don’t necessarily go together. Some of the biggest advocates of "competition" are the ones braying for more regulation, often via euphemisms such as "open access."

Instead, Powell needs to streamline regulation, largely by eliminating the culture of complex mergers created by former chairman William Kennard.

Hold on a minute, you say. Kennard didn’t ask for all these mergers, he complained about them. But I believe Kennard’s approach produced the opposite result he intended. Look at the invariable sequence of events:

1) Carriers announce merger; Kennard complains. 2) CEOs convince Kennard to think about it while they sign up former FCC officials as high-priced lobbyists. 3) Kennard signals staff to negotiate with lobbyists for "conditions" that sound good. 4) Conduct months of negotiations (for example, it took Bell Atlantic and GTE five tries to propose the "right formula" to spin off Genuity). 5) Approve merger with conditions as Kennard gloats about user benefits. 6) Merging companies go back to doing exactly what they want.

Step 7 was always the worst: Each of the major telecom mergers approved under Kennard’s watch -- WorldCom/MCI, SBC Communications/Ameritech and Bell Atlantic/GTE -- was followed by a severe degradation of customer service. And why not? Kennard trained these companies to shift their centers of executive energy to negotiating insincere side deals with regulators rather than executing network buildouts or improving customer service.

If Powell is faced with a big merger, the first thing he should do is shut up. Then, in private, he should ask the merging CEOs why they haven’t first done whatever the law says they’re supposed to be doing -- applying for long-distance in all their states if they’re Bell companies, or offering mass-market local service if they’re long-distance carriers.

To make this effective, he should brutally enforce the FCC’s interconnection rules but tell carriers he won’t listen to lobbying for new rules, including blockades on Bell long-distance applications.

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