American workers finally caught a break when the Federal Communications Commission reversed an archaic rule that had frozen the U.S. telecom network in obsolete technology.

This change is going to result in massive investments that will give American companies the high-speed communications they need to compete with Korea, China, and India.

Within hours of the announcement, SBC, Bell South, and Verizon announced they will immediately begin laying billions of dollars in fiber-optic cable to bring high-speed millions of homes and businesses across the country.

It’s about time. For too long, regional Bell operating companies were forced to share their networks with other companies at below-cost pricing set by local utility commissions.

The telecom network is the central nervous system of the American economy. It allows manufacturers, schools, and hospitals all around the U.S. to do business with each other. The speed of the telecom network controls the speed of economic activity, what we call Gross Domestic Product (GDP). Telecom policy should be the core of national economic policy.

Under the old rules America has fallen from first place to 13th place in global telecom speed. South Korea, China, and India have all made high-speed telecom networks a national priority. We haven’t. Outsourcing and lost jobs are the result.

In America, we have high-speed fiber-optic lines running only between major cities like a string of Christmas lights. From New York, you can communicate at the speed of light with a customer in Los Angeles, Shanghai, or Bangalore. But in the U.S., if your business is located off that string of Christmas lights in a small town, you’re out of luck.

This is especially important in our global economy. Americans are rightly worried about outsourcing, sending service and professional jobs overseas. It’s not only about low wages. We’re losing jobs because companies in China, India, and Korea have the high-speed telecom that our small-town companies don’t. We need the fastest telecom network in the world so American companies can compete and American jobs can stay home.

The U.S. telecom industry is depressed. Since March 2000, telecom companies have lost 67% of their market value -- or $760 billion.

Over the same period, the telecom industry lost 380,000 jobs. One out of every three lost jobs (or 29%) since March 2001 was in telecom.

Instead of growing and investing, our telecom industry has been sidelined by misguided policy. Under the guise of increasing competition, the Telecommunications Act of 1996 has undermined investment in the U.S. telecom sector. Telecom capital spending is down by two-thirds, from $132 billion in 2000 to $56 billion in 2003.

The government effectively nationalized telecom networks by taking away the property rights of the people who build networks. Until a 4-1 FCC vote last month, the rules forced the companies--who risk their money to build networks--to allow others to rent their facilities at a fraction of cost. That destroys the incentives for both the network builder and the user to make further investments.

Businesses and unions are demanding action. Based upon estimates from a recent study from the U.S. Chamber of Commerce, written by Deborah Hewitt, Tom Hazlett, Coleman Bazelon and myself, a thorough reform of telecom regulations could unleash $58 billion in new capital spending over the next five years.

Capital spending stimulates growth in two ways. The first is what the textbooks call the multiplier. A telecom company’s purchase of a new router from Cisco means bigger paychecks for Cisco workers, who increase spending themselves, and so on. That component by itself is worth $167 billion in increased GDP and 212,000 additional jobs per year over five years.

The second channel is even more interesting. Increased telecom investment will make American workers more productive and our businesses more competitive, allowing us to outsource to small towns in America instead of China or India.

This productivity increase is worth $467 billion in increased GDP over five years.

Adding both channels together, you get $634 billion of extra GDP. Rising productivity will keep costs and prices down so inflation stays low. And it helps the deficit. At today’s tax rates, the $634 billion of extra paychecks people receive will generate $113 billion in new tax revenues over five years.

The FCC ruling is a good start. I expect Congress to pass a new telecom law next year to complete the job. When they do, American businesses and American workers will finally get the tools they need to compete and grow.

John Rutledge is Chairman of Rutledge Capital and a Senior Fellow of the Pacific Research Institute. He was one of the principal architects of the Reagan Economic Plan.