NCPA - National Center for Policy Analysis


January 26, 2006

In 2004, the Federal Communications Commission (FCC) spent $1.2 billion on telecommunications and broadband regulation, but the actual cost is more than 60 times that amount, says Jerry Ellig of the Mercatus Center.

Annually, federal telecommunications and broadband regulation generates about $75 billion in wealth transfers and reduces consumer and social welfare by $25 billion and $41 billion, respectively; however, research suggests that telecommunications regulations have accomplished little.

According to Ellig:

  • Entry barriers -- specifically spectrum allocation and satellite regulation -- limit competition, raise prices and reduce the amount of service consumed; however, if 200 MHz (megahertz) of spectrum were devoted to wireless service, costs would fall by 50 percent, consumers would save $54 billion annually and $23.4 billion of consumer surplus would be generated.
  • In 2003, the federal government spent approximately $5.7 billion on universal service programs -- $3.3 billion subsidized high-cost carriers, $713 million helped low-income customers pay initial connection charges monthly phone bills and $1.7 billion subsidized internal wiring, telecommunications and Internet service to schools and libraries.
  • Mandated services also increase the cost of telecommunication services, but they can also provide benefits, like Enhanced 911 -- which allows the recipient of the 911 call to identify the caller's location.
  • In 2003, unbundled network element platform regulation transferred approximately $3.1 billion for incumbent phone companies to competitors; if that money had been used to reduce interstate long-distance access charges, prices would have dropped by 0.9 cents per minute and would have generated a customer surplus of $148 million.

In the next few years, Congress and FCC will have to make significant decisions affecting many of these areas to address the future costs and outcomes of telecommunication and broadband regulation, says Ellig.

Source: Jerry Ellig, "Costs and Consequences," Regulation, Cato Institute, Fall 2005.

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