Half a Telecom Loaf, Better than None/Bosnia Watch
Jude Wanniski & David Gitlitz
August 9, 1995



The telecommunications regulatory overhaul approved by a surprisingly comfortable margin in the House last Friday is a considerable disappointment to the most fervent advocates of cyberspace, but probably represents the practical limits of what can be done under current political realities. The popular press remains preoccupied with the legislation's impact on media ownership concentration and the lobbying battle between long distance and regional telephone companies, but these are largely secondary concerns. The crucial issue is whether the legislation will sufficiently facilitate integration of cable, wire and wireless communications to open the way for a potentially limitless array of data, video and voice applications. Our assessment is that it marks a serious start in the right direction, although the frustration of those who were hoping for more from a Republican-controlled, ostensibly deregulation-minded Congress is understandable.

The bill, which will go to conference with a similar Senate measure following the August recess, attempts to strike a balance between an aggressive, innovation-driven, technology-dominated vision of the economic near future, and a more cautious, risk-averse, conception. House Speaker Newt Gingrich, for all his enthusiasm about a 'Third Wave" society, is unwilling in the final analysis to plow under the existing capital base in a head-long rush to the cyberspace frontier. It is a prudent political move, in the progressive tradition of Teddy Roosevelt, who reined in the economic royalists of his day while presiding over a period of extraordinary economic dynamism and progress. The technology purists may fault Gingrich for his willingness to cut political deals to maintain elements of the status quo. However, the 305-117 vote in the House is palpable evidence that Gingrich and his team have deftly negotiated the varied interests that could easily have fought this issue to a standstill via a presidential veto.

The legislation embodies a number of seeming half-measures. It holds out the promise of liberalizing cross ownership between cable and telephone companies to spur development of integrated, interactive systems. Yet it maintains strict restrictions on cable-telco merger activity in the interests of preserving "competition," establishing a bureaucratic "public interest" regulatory review to assess cable-telco collaborations. It frees up cable operators from most of the impediments of the 1992 cable regulation statute, that by all accounts have been a burden to new investment and innovation, yet it would impose regulation on video signals sent over phone lines. It opens up competition in regional and long-distance telephony, allowing regional Bells to offer video and data as well as voice communication over a nation-wide system, for example. Nevertheless, it preserves the power of regulators to judge whether the public interest will be served by the companies' entry into markets where they are currently barred.

The legislation will, for one thing, open a floodgate of new investment. One project, a joint venture of the Sprint long distance company and TCI, Cox and Comcast cable companies, plans some $10 billion in expenditures over the next few years to link phone both wire and wireless with cable in a broadband, multimedia, interactive network. The project, initiated last fall, has been slowed by uncertainty surrounding the legislative outlook, particularly with regard to cable and phone regulation. Passage of the legislation now in Congress should put the venture on a fast track. The potential of this project is illustrated by the excitement generated by one of its vendors, Qualcomm, a San Diego-based firm that holds a patent for digitizing the wireless signal used in personal communication services (PCS) systems. Last month, the Sprint/cable venture announced that it will use Qualcomm technology for its PCS system. Subsequently, in the last week of July, the company announced plans for a secondary issue of 8 million common shares to raise $320 million in capital for the project. Although the offering represents a 15% dilution of current Qualcomm common, announcement of the issue propelled the stock from about $37 to better than $44. The company is also a high-tech boon to the Southern California economy, hiring hundreds of engineers and technicians who were laid off in the aerospace industry cutbacks of the last several years.

Still, the critique of technological determinists such as George Gilder is compelling. Against the potential opening of an infinite variety of cyberspace applications powered by efficiency-driven, value-producing cable-telco combinations (with the potential to create $2 trillion in market value, according to Gilder), they see continued bureaucratic meddling powered by special-interest lobbying. In an article in The Wall Street Journal last week co-authored with consultant Frank Gregorsky, Gilder argued that the legislation's continued restrictions on cable/phone company mergers "makes as much sense as birthing an interstate highway system with a proviso that the new roads shouldn't overlap or build upon the existing U.S, routes." It's the difference between the vision of a decentralized, niche-oriented, individually-empowered Third Wave economy and a centralized, standardized, mass-oriented, bureaucratic Second Wave society. For Gilder and Gregorsky, the game isn't worth the candle, and they would just as soon see Bill Clinton make good on his veto threat although for different reasons than those cited by the President.

To be sure, the legislation leaves an unfinished deregulation agenda, including eventual elimination of the FCC. Time is on the side of the visionaries and the innovators. Supporters of the legislation can make the case that nothing of real importance will be lost if the process of deregulation is slowed enough to allow the technological universe to absorb and adjust Another crack at the process sometime within the next four years seems entirely plausible. As the legislation can make it into law in its current shape, it will clearly liberate sufficient capital to drive telecom productivity and expansion to more promising frontiers.

David Gitlitz


There may still be some border skirmishing if the Croatian army tries to snatch oil fields controlled by the Bosnian Serbs, but the balance of forces is beginning to look just about right for a negotiated settlement. This is why National Security Advisor Anthony Lake has rushed off to Europe, with hints of a stop in Moscow. When Russian President Boris Yeltsin offered to mediate a deal between Croatian President Franjo Tudjman and Serbian President Slobodan Milosevic, with the Bosnian Muslims presumably looking on, President Clinton's team may have realized a deal was in the works, and they might as well horn in on it. The contesting parties in the Balkan civil war have to decide themselves if they are satisfied with the divisions arrived at by force of arms, but they do need a rubber stamp from the Great Powers to legitimize the arrangements. Part of the deal will of course be a lifting of the international economic embargo on Serbia, which might come in stages, as proposed by Carl Bildt, the former Swedish prime minister, who is trying to broker the deal for the European community. The developments are in line with our assessment of July 17 ("Bosnia, a Way Out"). In today's New York Times, we find an op-ed by Charles G. Boyd, an Air Force general who was deputy commander-in-chief of the U.S. European Command until his retirement last month. Boyd says this really isn't a struggle between good and evil, as our hawks in Washington and New York keep insisting. 'The Serbs have rights, too," he asserts. His way out: Let Moscow take the lead: "There is a risk, but it is a price the United States may have to pay to finally end this war." This of course would be a bitter pill for our hawks at home. See Tuesday's Wall Street Journal editorial, "Not the Time for Talk," warning against Moscow's "siren song." This is of the same Cold War vintage as the Journal's call to march on to Baghdad, after mowing down what was left of the Iraqi army. It was Colin Powell, remember, who stopped the slaughter, calling it "a turkey shoot." Hey, Moscow's siren song sounds sweet to me.

Jude Wanniski