Competition desirable but at what cost?

The Federal Communications Commission doesn't seem to be getting the message.

That's what a federal appeals court told the government regulatory agency Tuesday when it dealt the FCC yet another defeat in the agency's attempt to encourage local telephone competition.

The D.C. Circuit Court of Appeals ruled in favor of four phone companies - Verizon, Bell-South, SBC and Qwest - which had complained about new rules imposed on them by the FCC that are ostensibly supposed to encourage more phone competition.

The FCC rules require the phone companies to give competitors access to their networks of lines and switches so competing local phone services are available to choose from. The issues are whether the FCC has the authority and whether that access is required to be offered at artificially low prices.

The idea of competition, of course, is desirable. It is beneficial to consumers. That is why Congress mandated more phone competition in 1996, but a mandate doesn't make it easy. Phone companies are regulated as a public utility because it is costly to create the networks that provide the service. There is also often limited access available for phone lines because of the need for public rights of way. That has restricted how many phone companies can serve an area. These same issues apply to all public services.

It is impractical or impossible for potential competitors to create their own telephone networks to enable them to go head to head with the existing phone companies which have invested heavily in their own lines and equipment. The FCC's solution is to have state regulatory bodies mandate access for competitors to the existing network, a idea that makes sense on the surface.

But the courts have said that is a no-no because Congress has not delegated to the FCC the authority to tell states how to encourage competition. While some may view that as a legal technicality, there is another issue and that is, what is fair competition?

The existing phone companies say state regulators have been overzealous in efforts to encourage competition, going so far as to force the companies to price their network availability artificially low. In other words, they are being forced to give a competitor an opportunity to charge less than they themselves can charge to cover the costs of their network and investment. It's like a "free" ride for the competitor, something no business would want.

If that is indeed happening, it is wrong. Even though the phone companies are "public utilities" they have many private investors who have put their money into developing the networks necessary to meet their obligations. They have a right to expect a fair return on their investment and to not have to give an unfair advantage to competitors.

The courts have made it clear three times now that the current process isn't proper. It is now up to the FCC to find other ways to encourage the desirable competition while being fair in the process.