As 100,000 workers at SBC Communications Inc. conclude a four-day walkout after midnight tonight, California's dominant local phone company is still trying to look for ways to lower its labor costs to better compete against rivals that are luring away customers and squeezing prices.
That competition stems from the Telecommunications Act of 1996, a landmark law that opened the Baby Bells' monopoly markets. And now the Federal Communications Commission and the Bush administration are pressuring the Bells and their rivals to negotiate leases of Bell networks and other gear.
Watching the negotiations is Michael D. Gallagher, the Bush administration's principal advisor on telecommunications policy. Gallagher heads the Commerce Department's National Telecommunications and Information Administration, an agency charged with creating jobs in the telecommunications industry, encouraging competition, spurring innovation and helping improve the economy.
Gallagher, a graduate of UC Berkeley and UCLA's law school, entered government from the wireless industry, where he worked for AirTouch before it was acquired by Vodafone and eventually merged into Verizon Wireless. He sees wireless technology as a way to get around the chokehold the Bells have on local access lines, called loops.
He talked about phone competition, the lease talks and affordable high-speed Internet access during a recent interview at the third annual Wireless Telecommunications Symposium at Cal Poly Pomona.
Question: What's your role in the current round of talks?
Answer: The FCC is in charge of it. We have a strong interest in making sure the outcome comes out well. So our role is one of support for the outcome and working together with folks as we can constructively.
Q: So if these talks succeed, does the commission take the credit?
A: Well, I think the American people take the credit. They're the direct beneficiaries of it. When you have a competitive environment, there's an equilibrium that's achieved and you have new enhancements and lower prices, then there is a distinct benefit to our economy and to our citizens.
Q: The Bells control about 85% of the local business nationwide and a growing piece of the long-distance market. Does that share give them unequal bargaining power?
A: We're engaged in a transition. If you go back in legislative history of the Telecom Act and look at the speeches in Congress at the time, you have people who were saying, "We live in a monopoly world right now. We're going to open all that up and have all this competition." And everybody agreed. We wanted to be in the position where we have multiple competitors offering multiple exciting services.
But this road on how we get there is extraordinarily difficult. And that's what we're managing.
Q: So in managing deregulation, does this unequal market share demand that the government have more oversight or stronger oversight of the process here?
A: I think it depends on the nature of the marketplace. What market share did Internet Explorer have in browsers when it first was started? Zero. None. Netscape was it. Netscape was the dominant browser, and today it's still a fabulous browser. But if you look at the shares, very different.
So you have to ask yourself what your expectations are for competition to calibrate what degree of government involvement there should be in a particular industry.
Q: But isn't there a big difference between Internet Explorer and telecom? There's a bottleneck -- the lines to homes -- that is controlled by the network owners and can't be replicated. Is that a monopoly that needs to be opened up?
A: Plenty of people say that Windows is a bottleneck and we need to open that up and make the source code available. But the telephone industry is certainly a very different animal.
Q: It's an essential service.
A: You have to look at barriers to entry and you have to look at substitution of other products. For the local loop today, we're just beginning to see those types of intermodal competitive offerings, which still are not quite fully substitutable.
We have 163 million wireless customers. Massive numbers of minutes are moving to the wireless networks. But even with today's spectrum allocations, they don't have enough spectrum to replace the wire-line phone system.
Also, if you talk to people, they really rely on their wireless, but it's a supplement, a fast-growing supplement. It's not a replacement except for a very small number of people, mainly college students.
Q: Will voice over Internet protocol technology become a replacement?