In my opinion, clarity, consistency, and predictability in regulation coupled with an overarching bias toward restraint will minimize the cost of capital for the telecommunications industry, thereby encouraging increased investment and strengthening the industry. The consequences of the Telecommunications Act of 1996, some intended and others likely not, have been such that there are critical areas of potential investment for the industry in which federal regulation lacks all of the necessary conditions listed above to minimize the cost of capital, with the possible exception of what appears to be an evolving bias toward regulatory restraint by some at the FCC. 

The most glaring example of an area in which the above conditions are absent is in the regulation of broadband access to telecommunications networks and the uncertainty surrounding the future duties of the incumbent local telephone companies to lease elements of their networks to competitors. To frame the discussion, I must point out that the very notion that a shareholder-owned corporation is subject to mandates requiring it to lease its primary asset to its competitors at a rate dictated by the government is to say the least atypical when looked at against the backdrop of the U.S. economy. I'm not here to judge whether this is right or wrong from the standpoint of public policy but merely to point out that this idiosyncrasy serves as a foundation for investor analysis of the local telephone companies and is clearly one that raises the cost of capital for these companies and thus discourages investment. Moreover, the lack of clarity, consistency, and predictability of regulation with respect to future investments in broadband infrastructure. 

Here I am specifically referring to the investment requirements to deploy fiber optic-based technologies deeper into the access network in order to deliver increased bandwidth to homes, educational institutions, and healthcare facilities that are generally outside of the main commercial districts of our cities and to bring the same to the more sparsely populated parts of the country. While I do not hold myself out as an expert on the intricacies of FCC regulation in this area, I can tell you that there is sufficient uncertainty surrounding the potential obligations to lease out "elements" of this new investment to their competitors that it is raising the cost of funding these investments. Simply put, investors are far less likely to embrace aggressive plans to invest in this kind of network upgrade when there is uncertainty over what is in the vernacular of telecom regulation "unbundling" obligations. In the absence of clear regulatory policy, investors will be far less tolerant of additional investment and more likely to demand their money back through increased share buy backs and dividends. Managements will be far more likely to explore investing outside of the United States, in geographies where they can more easily evaluate the risk associated with their investment. 

What makes this situation somewhat perplexing to me is that policy makers are addressing the very same issue for the cable industry with far less ambiguity. While there has been no affirmative claim by the FCC stating that cable broadband access will remain deregulated in perpetuity, the mere absence of such existing regulation compared with the requirements currently placed on the local telephone companies gives an investor more confidence that future resale requirements will be less onerous. The only legitimate reason that I can see for the current asymmetry that exists in broadband regulation among the cable and local telephone industries is that the federal government feels that public policy is advanced by choosing winners here. 

My comments, while focused primarily on the local telephone companies, can be equally applied to other companies in the telecommunications food chain. Clarity on regulation is equally important for shareowners of AT&T as it is for Verizon. AT&T is currently spending significant resources to market a "bundled" local and long distance voice telephone service through leasing the local access network of the incumbent local telephone companies. To me, this investment only makes sense in the context of a long-term plan in which AT&T will be able to provide broadband access to these subscribers as it is likely that voice and data services will migrate onto one converged network over time and that carriers will need the ability to offer both services with a competitive cost structure in order to survive. The current lack of clarity is raising AT&T's cost of capital as is evidenced by a declining stock price. Current and prospective investors in the company would benefit from more certainty over the course of future regulation. Should the company be spending aggressively to defend its consumer long distance business through bundling it with local telephone service, or should it be harvesting this business and returning cash to investors? The answer to these questions hinges on regulatory clarity. Much the same can be said about