. . . Dig deep enough, and you’ll figure out that SBC’s fate hangs on the thread of a carefully worded section of the Orwellian named Telecommunications Reform Act of 1996.

Congress was duped by Reed Hundt into thinking they were getting real competition. The ’96 Act insisted that regional Bells should share their lines with others, and voila, competition. Not so. Tucked in the legalese were pages of gobbldey-gook on how to set prices to share these copper wires—a formula known as TELRIC, total element long-range incremental cost. Rather then use historic costs that with depreciation would likely be close to zero, TELRIC is a fuzzy future cost. Its pie in the sky—the hypothetical cost of stringing new phone lines today.

But that’s like figuring the price of getting to Europe using the hypothetical cost of digging a tunnel under the Atlantic Ocean, instead of computing airfare. It gives Bells a license to steal. Only a fool would string copper phone lines today—you’d run fiber capable of gigabit speeds—yet copper is how we determine prices.

A phone call is just 16K of data bandwidth. The math is easy. Based on current gigabit fiber line monthly fees, the value of phone service is a meager 1.6 cents per month. That’s it. Amazingly, SBC charges $18-$22 and rising per month and complains that’s below their costs! (By the way, that’s what AT&T does for businesses today—runs data lines of fiber to bypass SBC and lower corporate phone costs.)

Current line-sharing costs are not just slightly off, they are on a different planet. So how does SBC, Verizon, Bellsouth or Quest transition from phone-company to data-company? They don’t. They pray TELRIC is written in stone. . . .

Companies like SBC and Verizon aren’t just praying in the First Church of TELRIC, they’re putting lots of cash in the offering plate as it goes by. According to the Center for Public Integrity, SBC has expended almost $73 million related to lobbying since 1998. They’ve made over $10 million in political contributions, split fairly evenly between both parties.

The point for investors, as Kessler rightly implies, is that companies that have to get Washington to set the competitive landscape for them are generally poor investments. The difference between 1.6 cents and $18-$22 is simply too great for a free market place to ignore. As we heard from Walter Wriston, the market always proves to be bigger than Washington.