NCPA - National Center for Policy Analysis

Spurring Broadband Investment

May 4, 2004

A new report from the American Council for Capital Formation, prepared by Decision Economics and to be released today, looks at the macroeconomic benefits of telecom deregulation.

Telecom market capitalization is down $2 trillion from its peak, and capital investment is off by some $280 billion. Thanks to price controls and an industrial policy that ignores property rights, the Baby Bells have not invested as much as they otherwise would have in upgrading their networks for broadband. AT&T and MCI have underinvested in building their own networks because leasing access to the Bells at artificially low rates is a more attractive option.

Economist Allen Sinai and his fellow authors conclude that if the Federal Communications Commission adopts rules consistent with the March 2004 D.C. Circuit Court of Appeals decision ordering the FCC to scrap rules that force the Bell companies to share their phone networks with rivals at below-market rates:

  • Capital spending on communications equipment alone could increase by an average of $2.8 billion a year over the next five years.
  • Real gross domestic product would increase by an average 0.2 percent in 2006 and 2007 or $14.8 billion, annually -- and in 2008, real GDP would be $ 16.6 billion higher than the baseline.
  • It would create up to 91,000 new jobs a year -- peaking in 2007 with 130,000 additional jobs that year.

The FCC is now weighing whether to appeal the circuit court's decision to the Supreme Court. The study's findings argue strongly against such a move.

Source: Editorial, "Telecom's Potential," Wall Street Journal, May 4, 2004; see also Decision Economics, "Macroeconomic Effects of Telecommunications Deregulation," American Council for Capital Formation, April 2004.

For WSJ text (requires subscription),,SB108362611545400865,00.html


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