NCPA - National Center for Policy Analysis

Broadband Competition Stifled By Monopoly

June 2, 2003

A major problem in opening regulated monopolies to competition is that the incumbent utilities -- such as electric and telephone companies -- own the only available network wired to consumers. Since governments have not removed legal barriers and monopoly franchises that prevent competing networks from using utility easements, all competitors must used the same wires, unless competing technologies are available.

Thus, electric power deregulation has encouraged or required the owners of "wires" utilities to get out of the power generation and retail sales business.

  • But a 1996 federal law simply required telephone operating companies to open their wires to other providers.
  • The 1996 Telecommunications Act encouraged hundreds of competing telecommunications companies to invest in local phone and broadband services.
  • The Bells and their competitors have been in court ever since, arguing over the proper charge for the use of these services.

The 1996 law allows local operating companies to get into the long-distance market. But competitors claimed they charge exorbitant access prices. More than 250 small and medium companies have collapsed, as well as large ones. This has drastically reduced local service competition.

State utility commissions have begun to lower access rates, and some local phone rates have dropped by a third. Nationwide, consumers and businesses could save $15 billion a year from greater competition.

However, the Federal Communications Commission is allowing the Bells to sell broadband services along with long distance, putting competitors at a disadvantage.

Some economists recommend breaking the Bells into pipeline and retail companies, where the pipeline companies would provide all competitors equal access.

Says AT&T consultant (and NCPA senior fellow) Laurence Kotlikoff, "Such structural separation was the hallmark of the 1982 court decision that broke up our national phone system and delivered a highly competitive long-distance market, with dramatically lower rates."

Source: NCPA comment & analysis; Laurence Kotlikoff, "Phone deregulation needs 2nd step," Dallas Morning News, June 2, 2003.


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