NCPA - National Center for Policy Analysis

Negative Impact of Forced Access to Telephone Networks

June 25, 2003

Artificially low wholesale prices for telecommunications services imposed by federal regulations are costly to Americans consumers, concludes a report from the Competitive Enterprise Institute and the New Millennium Research Council.

According to the report, current federal rules require local telephone companies (called Incumbent Local Exchange Carriers, or ILECs) to lease unbundled network lines and switching equipment to their competitors (called competitive local exchange carriers, or CLECs) at lower than cost. As a result:

  • CLECs are abandoning the networks they were building in favor of leasing network elements from incumbent telephone companies at low prices.
  • These prices make the ILECs' wholesale services unprofitable, and discourages their continued investment.
  • As a direct result of low wholesale prices, industry-wide telecommunications investment has fallen 40 percent over the last two years.

Furthermore, retail customers end up subsidizing wholesale customers and residential customers receive little benefit from local competition. The report states:

  • Competition from CLECs provides a benefit to consumers of about $11 per household each year.
  • However, the lack of competitive networks due to regulations cost the average American household over $100 each annually.

According to Solveig Singleton, a senior policy analyst at CEI, the study "provides significant empirical evidence that UNE pricing fosters the dependence on the lonely, aging, local phone network, rather than real competition between different networks."

By implementing rational wholesale prices, say analysts, consumers would benefit by the increased investment and local competition, the creation of new jobs and the overall stimulation of economic growth.

Source: Stephen B. Pociask, "The Effects of Bargain Wholesale Prices on Local Telephone Competition: Does Helping Competitors Help Consumers?" June 16, 2003, Competitive Enterprise Institute and New Millennium Research Council.


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