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Wednesday, June 06, 2012

Telecom Price Controls, Again?

It never ceases to amaze how often economic common sense is ignored by those in government. The Federal Communications Commission (FCC) is back to considering the idea of imposing price controls on special access lines, which are high capacity lines provided by incumbent carriers to businesses and other telecommunications firms.

Some might have thought that this issue was laid to rest with a Clinton-era FCC order and with the vast expansion in competition and choices. But apparently not.

When have price controls ever worked?  Well, never. Government setting prices means government limiting returns. It should be obvious that would be a big negative for innovation, investment and service.

As a quick refresher, in 1991, the FCC imposed price caps on these special access 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.

And in fact, competition clearly has flourished, including from cable companies, fiber to the home, along with all kinds of wireless services.

Unfortunately, if the FCC goes ahead with price controls, the result would be to reduce incentives for innovating and investing. That, of course, would be in direct conflict with the stated objectives of the Obama administration to expand the reach of high-speed services.

The problem was neatly summed up in the following from a June 5 article:

“Randolph May, president of free market think thank the Free State Foundation, called efforts to regulate special access ‘wrong headed.’ Other companies are building networks to compete with the large special access providers, he said. ‘Competitors have been seizing, and continue to seize, opportunities to enter the “special access” market segment and build out new network facilities -- even though they are clever enough not to market their competitive services under the 'special access' moniker,’ May wrote in an email. ‘If the FCC were to reverse course and require the incumbent providers to reduce the rates for their special access services, the incentive for competitors to continue investing in the build-out of new facilities would be suppressed.’”

As for entrepreneurs and small businesses, they probably gain more than others by investment and innovation in high-speed telecommunications services. Small firms wind up better able to expand markets, service customers, find employees, and work with partners. Indeed, the telecommunications revolution has been transformative for entrepreneurs. So, why go back to stifling regulation?

The FCC’s August 1999 order opened: “Today the Commission adopted an Order that allows competition, rather than regulation, to determine prices for interstate access services, thus providing customers more choices among services, carriers, and rates. The Order gives the nation's largest telephone companies progressively greater flexibility in setting interstate access rates as competition develops, gradually replacing regulation with competition as the primary means of setting prices… These reforms will enable those companies to compete more efficiently, and customers of interstate access service should benefit from increased choices among carriers and lower overall rates.”

That’s exactly what’s happened. The FCC should let its 1999 wisdom stand.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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