Out with the old, in with the new -- but how?

I received today a special edition of David Weinberger's JOHO newsletter [here] which in turn directed me to the open letter to FCC Chairman Michael Powell on this page.

The letter's argument turns on several points. (1) "[B]alance-sheet weakness, long-haul overcapacity, and even the recent speculative bubble[] are effects, not causes," of the apparently pending collapse of the telephony industry as we know it (ILEC, IXC, and CLEC providers). (2) Though none of them to admit it, the infrastructure that these providers have invested in is largely obsolete. (3) The best result is to let the current providers fail and to encourage new companies to enter the market using newer technologies, resulting in more widely available broadband and other next-generation technologies.

Here are some of my tentative initial thoughts on the matter. I may think rather differently after I've had a chance to talk to my former regulated industries professor.

One legal and practical problem that I expect the FCC will face in considering this letter is its mandate to try to provide universal service. Ranchers in Sterling, CO pay the same or almost the same price for residential telephone service that I pay in the Denver suburbs, even though it costs a great deal more to provide them with that service. Few rural residents could afford telephone service if they had to pay the fully distributed costs of that service. Federal and state telephony laws mandate a scheme of cross-subsidies to make service to the poor and distant possible. The FCC, under Congressional mandate, has sought to maintain some form of Universal Service even in the context of competitive local service and the mishmash of regulated and unregulated services that one finds in present-day telephone service. If I recall correctly, current law and FCC regulations impose an access fee that goes into a pooled fund; most LECs explicitly pass that fee on to the consumer as a consumer charge (look for the "universal service fees" and other government access charges on your bill). The FCC cannot simply choose to ignore the fact that the demise of telephony as we know it could leave a lot of people without any form of service.

If Qwest were to shut down operations tomorrow, I would still have my Sprint PCS cellphone, though I'd disappear from the internet because I can afford no more than my dialup modem for internet access, and nobody provides broadband service to my apartment for a startup cost of less than several hundred dollars. Many people outside the Denver and Colorado Springs areas would be left entirely in the cold. Some of them might be lucky enough to receive cellular service, if they can afford it. Most in rural areas would be without any form of voice telephone service, let alone data.

The FCC can let the RBOC/ILECs fail only when someone has shown them how those rural services can be replaced, unless Congress removes the universal service mandate. Universal service is the unwanted stepchild of regulation, for only the people who receive subsidized service like it. LECs don't like to have to shuffle around the money to pay for it or to invest in miles of telephone line on which they reap no profit. Unsubsdized customers don't like to pay the fee. It's a subsidy that prevents accurate cost distribution, but it has important social goals. The law requires the FCC to devise and enforce universal service mechanisms. It cannot legally decide to allow current telephony systems to collapse without explaining how it plans to try to provide universal service in the future.

Another problem is that we are so dependent on telephones that a cataclysmic collapse of the CLEC/ILEC/IXC structure even for a few days would have horrendous costs. This raises all kinds of questions. What exactly do proponents of allowing complete failure have in mind when they talk about that failure? Who is to be left without service for days, weeks, or months? Can there be some sort of massive bankruptcy phaseout of existing systems, or do we just starve them and see how long it takes them to turn off the power to the central offices? Who will be there at that very moment to provide reliable interconnection between everyone who has service the day before?

I wish I had rhetorical answers to these rhetorical but serious questions. They are questions the FCC must ask and must try to answer. I have no doubt that we need to migrate to new technologies and new ways of providing communications services. The problem is how to minimize the costs of that transition. Anyone have any ideas? The FCC can act legally only on the basis of substantial evidence in the record and consistent with the requirements of federal telecommunications law.