Any Link Between Telecom Capacity Swaps and Flipping Oil Contracts?

Not so long ago employees at Enron and at numerous telecom firms learned a financially lucrative lesson: there was (is?) more money to be made in swapping capacity than in delivering it. Indeed there was plenty more money available if traders could collectively create artificial bottlenecks and shortages.

My takeaway from that experience: if traders can manipulate electrons delivering electric power and telecommunications traffic, it’s quite possible that managers of packet streams can engage in similar conduct. Packet management can represent legitimate (and lawful) network management, or it can represent surreptitious meddling with an eye toward raising the cost of doing business for competitors and favoring affiliates or third parties.

A variety of petroleum industry observers reckon that traders may have helped artificially run up the price of oil. Notwithstanding some significant confidence in marketplace forces, I am beginning to wonder whether previous attempts to manipulate the price and profitability of electricity and telecom capacity may present a model emulated by oil traders.

While not hankering for oil trading regulation, I wonder whether empirical data might corporate this suspicion.

Grieving Loss of the Filed Rate Doctrine

In their quest for deregulation wireless carriers in the United States may regret one regulatory feature: the Filed Rate doctrine and more generally the power of tariffs to establish compulsory contractual terms and conditions. With tariffs carriers enjoy substantial insulation from subscriber law suits and liability for violating consumer protection safeguards. Presumably a regulator approved tariff offers such adequate consumer safeguards that other consumer protections would be unnecessary. In any event the tariff supersedes any contract or marketing promise made to seal the deal.

In the current wireless environment the carriers apply “take it or leave it” contracts with subscribers and no longer have to file tariffs. The carriers have to defend their contracts and their often suspect behavior against violations of state consumer, fair trade and other laws. The carriers now seek to remove the applicability of such laws on federal preemption grounds, i.e., that the risk of balkanized policies—50 different jurisdictions applying different laws—would so confuse and otherwise harm consumers that the FCC needs to establish one uniform set of rules.

In light of the FCC’s current lax attitude toward consumer protection federal preemption would offer wireless carriers a sweet deal: make some minor accommodation on early termination charges and receive some possibly significant degree of insulation from state consumer protection laws. What consumers save in terms of pro-rated early termination charges, the FCC will transfer that and more if wireless carriers can get away with behavior that otherwise would have them paying millions in damages for violating state law.