[0] Gartner Dataquest Says U.S. Telecom Policy Needs to Be Revamped; Analysts Say Telecom Policy Does Not Create Competitive Industries.

Business/Technology Editors

Gartner's Symposium/ITxpo 2000

STAMFORD, Conn.--(BUSINESS WIRE)--Sept. 27, 2000

The U.S. Telecommunications Act of 1996 and the Federal Communication Commission's (FCC's) implementation rules have failed to bring about competition in the local telecom marketplace, and this policy needs to be replaced, according to Dataquest Inc., a unit of Gartner Group, Inc. (NYSE:IT and ITB). While the telecom policy was crafted to enable a free marketplace, it has done little to develop this sort of environment.

"The United States has undergone some significant steps to open its markets to competition and provide advanced services to its citizens, but its policy for regulating telecommunications competition and looking backward for market success simply has not worked," said Ron Cowles, principal analyst for Gartner Dataquest's worldwide telecommunications group. "It's time to change the telecom policy to enable a future world we call the 'infocosm,' which is a connected world of people, by allowing the marketplace to work through incentives."

A vital part of a new public policy is that it should not be based on subsidies or on confiscatory and punitive rules but on innovative new network constructs encouraged at local, county, state, and national levels. For this to work, the policy needs to be surrounded by an economic framework that excites the service provider community to seize the opportunities inherent in this model.

"Incentives - not overextended rules - can and should be used to put in place new and more powerful networks, not only in areas attractive to competitors but in underserved areas as well," Mr. Cowles said.

The intention behind the Telecom Act was to spur competition in both the local-exchange and long-distance telephone markets. Its primary purpose was to open up U.S. local telephone exchange markets to effective competition by requiring the regional Bell operating companies (RBOCs) to provide interconnection, resale of local exchange service at a discount, access and unbundled network elements (UNEs) to their nascent competitors. As this was accomplished, the RBOCs would be permitted to compete in the long-distance toll market in their regions if after approval of application by the FCC.

After a three-year ordeal, the industry lobbyists won, and each got what they wanted, and they were allowed to better position themselves in their respective markets without permitting local competition. The cable television (CATV) industry avoided rate regulation, allowing it pricing freedom for its CATV services; the long-distance carriers saw an end to subsidy-laden access charges, making the provision of long-distance service cheaper; and the RBOCs would be allowed to offer long-distance services in their region.

"Nothing in this legislation addressed creating new local distribution networks to advance local competition or to make new competitive local service options available to consumers," Mr. Cowles said. "So, instead of acting as the catalyst to advancing competition in both the local exchange and long-distance telephone markets to the benefit of all consumers, the law served to improve the positions of the major cable television and telephone service providers in their respective markets."

Deregulation should be the ultimate goal, but Gartner Dataquest analysts said now is not the time to do this. Deregulating the telecom market now would be chaotic and not in the consumers' best interest.

"What is needed is establishing regulations that reward competitive behavior and penalize anticompetitive behavior rather than attempting to regulate competition through prescribing detailed rates, charges and rules," Mr. Cowles said.

Additional analysis is available in the Gartner Dataquest Research Brief "U.S. Telecom Policy: Time for a Change." This document examines what the goal for the U.S. telecom policy was when it was created, examines its impact on the market today, and introduces Gartner Dataquest's Infocosom Initiative as the means of getting advanced networks to unserved and underserved Americans. To purchase the report or subscribe to Gartner Dataquest programs, please call 800-419-DATA, or 408-468-8009. More information about Gartner Dataquest's programs, descriptions of recent research reports, and full text of press releases can be found on the Internet at www.dataquest.com.

This research is published by Gartner's worldwide Telecommunications and Networking group. This group provides analysis for the full spectrum of telecom and networking issues. To keep up to date on the latest telecommunication issues, please visit Gartner's Telecom Marketplace Resource Center at www.gartner.com/public/static/telecom/telecom.html.

The future of the telecommunications industry will be analyzed during Gartner's Symposium/ITxpo 2000, October 16-20 in Lake Buena Vista, Florida. This event is the IT industry's largest and most strategic conference providing business leaders with a look at the future of IT. Some of the speakers at this year's event include Hewlett-Packard's chairman and CEO, Carly Fiorina; Sun Microsystems' chairman and CEO, Scott McNealy; and Microsoft's president and CEO, Steve Ballmer. To register for Gartner's Symposium/ITxpo 2000, please call 1-800-778-1997 or 1-203-316-6757, or go to www.gartner.com/symposium. Members of media can register by contacting Lisette Kwong at 1-212-320-2330 or [e-mail].

Gartner Dataquest is the recognized leader in providing the high-technology and financial communities with market intelligence for the semiconductor, computer systems and peripherals, communications, document management, software, and services sectors of the global information technology industry.

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