Opening Markets and Keeping Them Open: A Contract and Antitrust Model

1
Opening Markets and Keeping Them Open A
Contract and Antitrust Model

• Ray Gifford, Chairman
• Colorado Public Utilities Commission

2
Opening Markets

• Eliminate entry and exit barriers
• Deregulate retail prices
• Correct price signals imperative to development
  of competitive market
• Enforce interconnection and unbundling
  requirements of 1996 Telecom Act
• Rationalize wholesale and retail pricing

3
Contract Rights

• Interconnection Agreement
• subject to traditional contract analysis
• Commission must have full remedial authority to
  discourage breach
• Intercarrier compensation must be efficient
• Access Charges--Paid by interexchange carriers to
  carriers for originating and terminating calls,
  40-15-102(25), (28), C.R.S.
• Reciprocal compensation--required by 47 U.S.C.
  252(d)(2) for local calls

4
Getting it Wrong

• Access
• Above cost for local loop cost support
• Promotes recovery of fixed cost through
  usage-sensitive charge
• Cross-subsidy from toll users to local users
• Incorrect price signals distorts market
  development
• underpayment for fixed costs overpayment for
  variable costs

5
Getting More Wrong

• Recip Comp
• To the extent cost-based, makes sense following a
  cost causation model
• Inherent difficulties of pricing correctly
• Commission can unintentionally create opportunity
  for regulatory arbitrage

• ISP Recip Comp
• Distorts business plans
• artificial inducement to acquire only terminating
  traffic
• disincentive to enter residential market
• Cross-subsidy
• from ratepayers to ISPs, their customers and ISP
  CLECs
• Facsimile of real competition
• not consumer welfare enhancing

6
Getting It Right--Model 1

• Truly cost-based pricing
• Three-phase pricing for access and recip comp
• phases set-up, capacity, usage-sensitive
• BUT
• impossibility of getting the price right
• information cost (metering and billing) is not 0,
  and is dead weight loss
• regulatory caprice and temptation
• requires rate rebalancing

7
Getting It Right--Model 2

• Universal bill and keep for access and recip
  comp
• ease of administration
• forces Commissions toward second best efficiency
  for retail pricing
• Bill and keep assumes
• very small short run and long run costs for
  traffic termination and origination on modern
  network
• information cost of metering traffic is dead
  weight loss
• Would allow carriers to negotiate other
  arrangements and rates
• BUT
• systematic undercompensation of carriers in
  access and recip comp
• forces retail rate rebalancing

8
Antitrust Monitor

• Now
• Commission oriented to regulating monopolies
• certification
• operating areas
• tariffing
• price regulation
• provider of last resort
• universal service
• Absent legislative command, none of these roles
  is warranted in a competitive market

9
State as Mini-FTC

• search and mitigate residual market power
• FCC should go no further on UNEs and pricing than
  antitrust essential facilities doctrine would
  warrant
• Intervention and regulation of telecommunications
  market must be warranted based on established
  antitrust principles
• Costs of regulatory intervention must exceed
  consumer welfare loss from persisting market power

10
Carrier Dispute Forum

• Specialized, rapid and expert resolution of
  disputes between carriers
• full panoply of contract and antitrust remedies
• Alternatives
• courts, private arbitration
• less fear of capture or systematic bias, but less
  expertise and slower

11
Consumer Ombudsman

• Rapid, decisive and punitive actions against
  carriers committing consumer fraud
• Monitor, mediate and aggregate consumer claims
  against carrier
• Enforce quality of service standards for captive
  customers

12
The Goals

• Commissions role recedes to that of referee
  instead of prescriptive bully
• Proper price signals for consumer welfare
  enhancing--not producer allocating-- competition
• Get Commission out of the pricing business absent
  market power problem
• Commission stops saying maybe, but gives yes or
  no answers so business plans can be made.