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Level 3 CEO Calls For Free-Market Approach To Telecom Regulation

James Q. Crowe, chief executive of Level 3 Communications Inc, urged state and federal regulators to embrace a new, free-market view of telecom regulation appropriate to the Internet age, where government's primary role is to promote competition and check monopoly power while maintaining affordable access to basic services.

In an address sponsored by the Progress & Freedom Foundation, Crowe noted that governments have accepted and encouraged monopolies in the telecom industry for most of the past hundred years. Today, however, that era has given way to a new world of intense competition and rapid technological advancement. Market forces increasingly serve to safeguard consumers, Crowe said, and governments should concentrate instead on ensuring that competition in telecom remains fair, open and robust.

"Innovation comes from competition," Crowe said. "The faster the pace of change, the more we need the entrepreneur backed by risk capital. The faster the pace of change, the more we need to resist those who defend de facto monopolies on whatever grounds."

Crowe argued that telecom, like rail and other "network" industries, is inherently susceptible to monopolies, because incumbents can stifle competition simply by refusing to interconnect with smaller rivals.

Meanwhile, telecom regulators are struggling to craft appropriate rules given the steeply accelerated pace of technical change in the industry. And ensuring access to basic services will always be a political and social imperative for government agencies accountable to the public.

Crowe recommended a long-term approach in which network interconnection rights are directly linked to basic service obligations. Companies seeking to compete as telecom service providers should be allowed to interconnect with each other at cost and in a fair, non-discriminatory manner, he said. They should also be given reasonable access to public and private rights-of-way.

In return, however, they should be required to contribute to the provision of basic services to the public. "Except for monopolies, no company should be required to accept 'service provider' status or basic service obligations," Crowe said. "However, the privilege of interconnection should only be provided to those who do."

The desired end-state, he said, is an industry that regulates itself with regard to these two fundamental principles, basic service and interconnection. Government, meanwhile, should play the role of neutral arbiter -- establishing rapid, cost-effective mechanisms to resolve disputes that arise between market participants.

"Since the industry does not have a history of self-regulation, this transition should be a carefully and cautiously managed process," Crowe said. "But when mature, this approach provides a much more efficient and effective result."

Crowe said limited regulation will be required to prevent companies that exercise monopoly control over "bottleneck" facilities from abusing that control to thwart competition. "Firms controlling essential facilities should provide access to them on reasonable, transparent and non-discriminatory terms," Crowe said.

"I realize that many of these recommendations will require significant changes to a century-old regulatory regime," Crowe said. "I realize that some are political third rails. However, the stakes are high. Over the long term, our national economic welfare and our security depend on us getting it right."