NCPA - National Center for Policy Analysis

The Cost of Telecommunications Regulation

November 19, 2002

The regulatory commissions that once worked to protect AT&T's monopoly in long distance and telephone terminal equipment now advocate competition, but they continue to impose regulations with substantial costs to business and consumers.

Telecom regulation has reduced the efficiency of the regulated firms, restrained entry of new firms, and slowed deployment of new technologies, say economists.

  • Federal and state regulators created a distorted rate structure to promote "universal service" that economists estimated cost the economy approximately $10 billion per year in the 1980s and remains in place today, although in less extreme form.
  • Additionally, the FCC has often been slow to approve the use of new technologies; for instance, the agency delayed the introduction of cellular telephony until 1983, at a cost to consumers estimated at as much as $50 billion in one year.
  • One estimate suggests the FCC's refusal, until 1990, to allow the Bell companies to offer voice-messaging services cost a total of $5 billion per year.

In short, the costs of telecom regulation have been very high. It is even more difficult to argue that the benefits -- if they exist at all -- offset the obvious costs of regulation. By the late 1980s, the Federal Communications Commission (FCC) itself recognized the deleterious effects it was having on productive efficiency and began to shift from cost-based regulation to price caps.

Source: Robert W. Crandall, "A Somewhat Better Connection," Regulation, Vol. 25, No. 2, Summer 2002, Cato Institute.

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