NCPA - National Center for Policy Analysis

Regulations are Delaying Broadband Phone Service

March 26, 2004

Within the last four years, the U.S. telecommunications industry has lost an estimated 900,000 jobs, $2 trillion in market capitalization and $280 billion in capital investment. The Wall Street Journal (WSJ) blames the problem on federal telecom regulations that support price controls and ignore property rights. Former federal judge Robert H. Bork blames it on attempts by local telephone companies -- the owners of local monopoly wire networks -- to keep out competition.

This continuing battle can be traced to the Telecommunications Act of 1996. Judge Bork explains that to encourage competition in local phone markets, Congress provided that competitors could use the facilities of the incumbent monopolists at regulated prices. What is happening, says the WSJ, is that Federal Communications Commission rules require local telephone companies to rent their phone lines to AT&T, MCI and other competitors at deep discounts -- really below-market rates.

A free-market approach would be better, says the Journal. AT&T argues that if it has to pay higher prices, customer phone rates will rise. But, says the Journal, the company's own One Rate USA plan indicates that market competition determines what customers pay, not price controls:

  • In Missouri, AT&T charges customers $49.95 per month for the plan and pays a regulated wholesale rate of roughly $19 per month to use the local phone network.
  • In Illinois, however, AT&T pays only about $12 to access the local network, yet still charges Illinois customers the same $49.95 rate.
  • The One Rate plan varies from $48.95 in California and Arkansas to $59.95 in South Carolina and Kentucky.

Local phone companies don't want to invest in broadband networks because the prices they can charge competitors are so low that they have little incentive to upgrade old networks, let alone build new ones.

Source: Editorial, "The Telecom Follies," Wall Street Journal, March 26, 2004; Robert H. Bork, "Telecom-Petition," Wall Street Journal, March 25, 2004.

For WSJ editorial,,SB108026032097265949,00.html

For Bork WSJ op ed,,SB108017418757864915,00.html


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