America's Network: Baby Bell or giant Behemoth? Telecom debate begins

Regulatory roulette is now underway, with federal lawmakers holding initial committee hearings about telecom reform, a new FCC commissioner in place and the "light regulatory touch" embraced by Michael Powell, the former chairman, likely to dominate the landscape.

Rewriting the 1996 Telecom Act is likely to be a long and arduous process, but already the political fallout is developing.

First, the divisive issue of whether the states or the federal government should regulate VoIP (if it is to be regulated at all, that is) has now been decided in favor of the feds. California's Public Utility Commission, which last year announced its own VoIP probe as a prelude to a possible legal challenge, suddenly threw in the towel. The

California PUC decided recently not to seek any legal oversight over the VoIP industry. "That's a loser issue," said Michael Peevey, the PUC president, noting that state regulators could put their resources to better use. California's sudden surrender on the VoIP regulatory front (the state earlier claimed it would lose hundreds of millions of dollars in tax revenue as IP telephony gains popularity) is sure to be noticed and likely emulated by other states, who now will bow to federal prerogatives.

Meanwhile, a new coalition has been put together by RBOCs and big business interests to insure the federal government keeps that aforementioned "light" policy on telecom intact. The coalition, called TeleConcensus, in pushing for enhanced broadband infrastructure investment, as well as "lighter" rules governing voice and data communications. The coalition is backed by a number of powerful special interest groups such as the Chamber of Commerce, National Association of Manufacturers - and SBC, Verizon and BellSouth.

However, some still favor regulation. The small and midsize business community (the customers for a lot of this next-gen technology) has started ringing alarm bells, concerned that the end result of telecom "reform" is likely to be a lot less suppliers and higher costs for customers. That's especially so outside of major urban areas.

Right behind small business is the consumer lobby, arguing much the same thing. In a prelude to the larger regulatory debate, the Consumer Federation of America and other private and state consumer groups blasted pending telecom mergers as anticompetitive and predicted that if approved, they'd result in the formation of "Behemoth Bells" that would crush competitors and any new entrants. In fact, this consumer coalition predicts the new merged telecom giants would control 90% of the wireline market, 70% of the long distance market and more than 40% of the wireless market.

Will the move to IP telephony derail this market dominance? Probably not for years. That's an issue worth considering as consolidation and regulatory reform move ahead.