Consumers: Telecom Reform Isn't Working

Alan Breznick

Terming the Telecommunications Act of 1996 "an abysmal failure to date," two leading consumer groups called on federal lawmakers and regulators last week to impose new price controls on cable, regional phone and long-distance providers, promote real competition among the companies, block further Baby Bell mergers and protect lower-income consumers from higher charges.

In a 62-page report released just five days before the third anniversary of the Telecommunications Act, Consumers Union and the Consumer Federation of America argued that the landmark law has spurred industry consolidation and contributed to a growing "digital divide" between affluent "telecommunications haves" and low-income to moderate-income "telecommunications have-nots."

Leaders of the two groups urged the Clinton administration, Congress and the FCC to acknowledge these flaws, amend the law and regulations and find ways to crack open markets still closed to competition.

"The world breaks down to be vastly different from what Congress anticipated and based this law on," said Gene Kimmelman, co-director of Consumer Union's Washington, D.C., office. "The vast majority of consumers live in a world of monopoly and very little choice."

The report says that only affluent consumers are benefiting from increased telecommunications competition since the law passed three years ago. Researchers found that these "premier" consumers, making up roughly 24% of the nation's households and spending about $200 a month on cable, phone, wireless and data services, are receiving the lion's share of usage discounts, bundling incentives and other price breaks.

On the other end of the spectrum, the report said, less affluent consumers have mainly seen steeper basic cable rates, increased in-state long-distance rates, greater minimum service fees and stagnating local phone and interstate long-distance charges. It charged that this "modest" group, comprising 45% of the nation's homes and averaging about $60 a month apiece on telecommunications services, is quickly falling behind.

The groups called on lawmakers and regulators to take 10 steps to promote greater competition, safeguard low-income consumers and prevent further industry consolidation.

Looking at cable, they urged Congress to re-impose rate regulation on the industry when the current rate controls expire next month. With cable rates up 21% over the last three years, more than three times the inflation rate, they contended that stringent price controls are needed until stronger competitors to cable emerge.

Disputing the cable industry's contention that satellite TV has developed into a major rival, Kimmelman and Cooper noted that DBS providers compete with cable only for the wealthiest customers.