Time for complete overhaul of the Telecom Act.

IMAGINE a world of true telecommunications convergence.

You get everything you want--video, voice, data and services--from one company at a great price. You can choose between at least two competitors offering these incredible packages, competing on price, quality and convenience.

Sound good? The Supreme Court, in its decision in the Brand X case, brought us one step closer to that world.

Brand X Internet Services in Santa Monica sued to block this vision of the future. The ultra-liberal Ninth U.S. Circuit Court of Appeals ruled in Brand X's favor in 2003, but the Supreme Court ruled against them June 27. The Supreme Court ruled that cable companies should not be forced to open their networks to competitors at below-market rates. The decision turned not on any question of principle, but on the arcane distinction between an "information service" and a "telecommunications service" in the convoluted Telecommunications Act of 1996.

Fortunately, the court deferred to the Federal Communications Commission on this issue, and the FCC has tightly opted for light regulation.

With the maturing in recent months of managed Voice Over Internet Protocol, the Bells' traditional voice service domain is now wide open to convergence-based competition. The Supreme Court decision in the Brand X case is great news because it means the fast-innovating cable industry won't be hampered in the way that the phone companies have been by line-sharing mandates, access charges and universal connectivity fees. But it also highlights the urgent need for broader regulatory reform to make video as competitive as voice is now becoming.

The telecommunications industry is the critical infrastructure of our modern economy. Unfortunately, outmoded regulations are handicapping the sector, placing us embarrassingly far behind other developed countries in areas such as broadband deployment.

The most recent broadband data from the International Telecommunication Union show that we've now fallen to 16th in broadband penetration--well behind Canada and Denmark.

We're lagging because the current regulatory environment gives phone companies powerful disincentives to make infrastructure investments. Some experts have estimated that more than $100 billion in such investments could be unleashed by deregulation.

The most significant of these roadblocks is the antiquated patchwork of regulations and fees that prevent the Bells from offering video services. As the highest-value telecom service, video is a key driver of infrastructure deployment. But local franchising rules, which are a relic from a time when towns granted exclusive franchise tights to cable companies, are a huge regulatory barrier that prevents the phone companies from offering video, the last step to full convergence and true market competition.

Ultimately, the 1996 Telecom Act needs to be comprehensively overhauled to place all of the telecom companies, however they deliver their services, on a level playing field. This would unleash a wave of new investment, fuel the ongoing tech stock rally, create hundreds of thousands of new jobs, and make us more competitive internationally.

Mallory Factor is chairman of the Free Enterprise Fund based in Washington.