What the US election means for telecoms

Global Telecoms

What the US election means for telecoms

All telcos are likely to have to make some adjustments and concessions under the new regime

Jan Dawson

Tuesday, November 11, 2008

UK: The accepted wisdom appears to be that the chairman of the FCC, Kevin Martin, will step down following the election of Barack Obama, and will likely be replaced by a Democrat nominated by the incoming president. This will shift the balance at the FCC from a 3-2 Republican majority to a 3-2 Democratic majority for the first time in eight years. As the terms of the other commissioners expire over the next few years there may be further changes in the composition of the commission.

The Martin FCC and the regime of his predecessor, Michael Powell, have taken a largely deregulatory, hands-off approach to the US telecoms sector. They have given the green light to large mergers such as Deutsche Telekom’s acquisition of Voicestream, SBC’s acquisition of AT&T and AT&T’s subsequent acquisitions of BellSouth and Cingular, Verizon’s acquisition of MCI, and just this week the acquisition of Alltel by Verizon Wireless and the merger of Sprint’s WiMAX assets with Clearwire. As such they have presided over a significant thinning of the major players in the US market, leaving four major wireless operators and three major wireline carriers (with Verizon and AT&T making up two of the members of both camps).

At the same time, regulations have been rolled back in a number of areas, reducing the reporting and network access requirements imposed on the RBOCs and focusing on facilities-based competition as the preferred alternative to regulation-dependent, service-based competition. This has resulted in an effective duopoly between cable companies and telcos in the consumer market and an oligopoly in the large enterprise market, with only the small and medium-sized business market seeing a significant number of competitors.

Larger operators likely to suffer most, but broader repercussions likely
The incoming FCC is likely to take a different approach, much more sceptical of further concentration of market power in the hands of a small number of players, and much less likely to lift regulation. Indeed, it is also much more likely than the outgoing administration to finally tackle the issue of net neutrality decisively, something the Martin administration dodged for a long time and then handled only half-heartedly earlier this year.

As such, the large operators which have done so well under President Bush are likely to find life more difficult under President Obama, while smaller players and consumer groups are much more likely to have their voices heard. The change at the FCC is likely to be echoed in other government institutions too, such as the Federal Trade Commission and the Department of Justice, both of which have roles to play in regulation, competition and merger activity in the telecoms sector.

On top of all this, broader changes in the government’s approach to regulating business will impact the telecom sector too. The Obama administration’s likely focus on environmental issues may lead to more stringent emissions standards, for example, something which hits telcos with their large fleets of specialised vehicles particularly hard. Tax rates on corporations may have to be raised to pay for some of the income tax cuts and increases in spending proposed by the Obama campaign.

At the same time, the drive towards sustainability should also provide opportunities for telcos, which stand to gain from efforts to substitute telecommuting, telepresence, telemedicine and other innovations for their less carbon-friendly current incarnations. If the Obama campaign makes good on its promise to invest in clean energy and other technology to reduce emissions, telcos may be the beneficiaries of some of this spending too.

Larger telcos are likely to feel the impact of the change in administrations more than their smaller brethren, but all telcos are likely to have to make some adjustments and concessions under the new regime.

The author is Vice President at Ovum, UK.

©CIOL Bureau