Superhighway hits FCC detour

The much ballyhooed merger between Bell Atlantic and cable TV giant Tele-Communications, Inc. aborted last week. Primary reason: A decision by the Federal Communications Commission to roll back rates for basic services (a new 7% reduction on top of last year’s 10% cut) and impose new regulations on the cable industry. These new uncertainties made pricing the deal impossible.

Result: No deal; delays in building America’s information superhighway; an increasing role of government as Federal bureaucrats and lawyers are substituted for entrepreneurs, engineers and consumers to design the information superhighway; the migration of innovation in communications from cable and telephony (e.g., fiber optics, coaxial cable) to wireless (e.g., satellite, cellular) and computer devices (e.g., CD-ROM).

Reason: many of the products and services that can be delivered by interactive, multimedia technologies that favor cable’s “big pipelines” (called “broadband”), and the interactive (or two-way) capacity of the phone companies can also be delivered by radio waves and hard disks. Examples: Home shopping, encyclopedias, home medical guides, games, movies and other entertainment. The substitution is not perfect, but it is substantial.

It is unfortunate — some would say irresponsible — that the cable and telephone industry leaders are not forcing a public vetting of the Federal government’s decision to detour the information highway. After all, there is a substantial national interest here: To expand choices and convenience for US consumers and give US businesses the competitive benefits of the information superhighway at the lowest cost at the earliest possible date.

Instead, telephone and cable company spokesmen mumble about “bumps in the road” and move on to the next deal as they accommodate rather than challenge the prevailing views of Washington lawyers and bureaucrats who believe you can “guide” the diffusion of new technology and “neaten up” the process of innovation so it isn’t so messy. These are the views of European social democrats which have been discredited everywhere (except Washington, D.C.) by the dreadful performance of Europe’s high unemployment, low innovation economy.

It is instructive that the same issue of the Wall Street Journal that carried the TCI-Bell Atlantic break-up story also carried the following headline: “France Steers Toward ‘Superhighway’ with TV-Industry Mergers, a New Law.” Punchline: The French government knows Europe is trailing the US in building advanced telecommunications. Playing catch-up, the French are increasing investment in cable and forcing new combinations among telephone, cable, publishing and television to motivate more sophisticated pan-European interactive networks — much like TCI-Bell Atlantic plan.

Conclusion: We need a public debate in the US before we let the government derail two of our most successful industries by punitive industrial policies . Industries can be run into the ground by misguided government regulation. Consider the fate of US railroads in the years following World War II when they were marginalized by public policy that favored highway and air transportation. Unless cable and especially the telephone industries get their act together and begin talking to the public in terms the public can understand, they will suffer the same fate as the railroads.