NCPA - National Center for Policy Analysis


March 2, 2005

Congress intended to modernize the nation's telephone networks with passage of the Telecommunications Act of 1996, but a series of missteps by state and federal regulators has caused the Act to devolve into one of the worst examples of corporate welfare and regulatory abuse in recent times, says the Pacific Research Institute (PRI).

Principally, the practice of forcing the "Baby Bells" and other so-called incumbent phone companies to share their wire line facilities with rivals at government-set rates, dubbed "forced access," has inhibited investment in new, more modern and competitive networks, says PRI. In no other state is this regulatory debacle more apparent than California, which can ill afford continued losses in the telecom sector.

  • California regulators have set some of the lowest forced-access rates in the nation, nearly 50 percent less than the actual cost of providing network services.
  • SBC Communications Inc. slashed spending in California from $8 billion in 2002 to $5 billion in 2003 in response to a hostile investment climate.

Most importantly, says PRI, forced access policies result in reduced industry investment, the mothballing of telecom facilities and higher calling rates for consumers. California?s wire line networks and local phone companies are desperately searching for a way out of the current maze of legacy lawsuits and legislation.

According to PRI:

  • The California Public Utilities Commission (PUC) should end forced-access; service providers should be allowed to negotiate network access on mutually beneficial terms.
  • The California state legislature should boost economic growth by requiring the PUC to develop new rules integrating free market principles and eliminating obsolete policies; doing so would promote competition, investments and consumer welfare in the local telecommunications industry.

Source: Sonia Arrison, Vince Vasquez, Diane Katz and Theodore Bolema, "Crossed Lines: Regulatory Missteps in Telecom Policy," Pacific Research Institute, February 2005.


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