Rail shippers want expanded "competitive access" for railroads included in legislation reauthorizing the Surface Transportation Board, say analysts. They want to treat the privately owned railroad tracks the way the 1996 Telecommunications Act treats local telephone wires -- as facilities open for use by all competitors at a regulated rate. However, rather than applying open access to all railroads, most proponents want to apply it only when one railroad provides service to a "captive shipper," believing lower freight rates would result from forced competition.

There are some features of regulated pricing and open access that apply to both rails and wires, say analysts:

• It is a well-established principle of regulatory economics that the economically efficient regulated price for competitive access must compensate the owner of efficiently managed facilities for the net revenues lost if someone else uses the infrastructure.

• If the regulated access price fails to compensate the owner for lost revenues, then some users may get lower rates, but there is no guarantee that the most efficient firm will actually provide the service.

• This is the likely result of U.S. litigation over access pricing in telecommunications: efficient competitors mixed with inefficient competitors who survive only because quirks of price regulation create special niches where they have artificial advantages.

But railroads are unlike telecommunications in some important ways. Telecommunications regulation assumes local wires are monopoly facilities, because local telephone companies have exclusive franchises. Railroads, in contrast, face a great deal of competition for most traffic, and have substantially reduced costs since 1980.

For these reasons, open access offers no free lunch. It can only give captive shippers the rate reductions they seek by reducing the efficiency of the U.S. rail system, harming other shippers and consumers.

Source: Jerry Ellig, "Rails and Wires: What's the Difference?" Capitol Comment No. 225, February 22, 1999, Citizens for a Sound Economy Foundation, 1250 H Street, N.W., Suite 700, Washington, D.C. 20005, (202) 783-3870.