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Friday, June 19, 2009

Telecommunications Price Controls?

When have price controls ever worked? Quite simply, they do not. When the government steps into to set prices, it in effect limits returns. That translates into reduced service, less investment and stifled innovation.

Why would anyone support such measures in the area of telecommunications? Nonetheless, a new coalition reportedly will be announced on Monday addressing special access issues, seeking more government intervention.

Special access lines are high capacity lines provided by telecommunications firms to businesses and other telecommunications companies. These lines meet both voice and data needs of businesses of all types and sizes.

In 1991, the Federal Communications Commission (FCC) imposed price caps on these services, but as technology advanced, it became obvious that competition could flourish. So, a 1999 order allowed for price deregulation in metropolitan statistical areas (MSAs) given that the incumbents could point to competitive triggers being met.

Competition clearly has expanded throughout the telecommunications arena, and the last thing needed is government intervention that would stifle further investment and innovation. That’s exactly what price controls and other new forms of regulation would do.

It is critical to keep in mind that entrepreneurs and small businesses gain most from investment and innovation in telecommunications services. After all, telecommunications advancements empower small firms to reach new customers, and to expand the pool of potential employees and partners. So, the FCC clearly should stand firm its policy of giving telecommunications firms flexibility in a competitive environment.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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