Public Knowledge, along with five competitive telecom carriers, today released an important economic analysis showing that decreased regulation of local telephone companies has resulted in less investment by those companies – not more as the companies claimed would happen.
The study, “Regulation, Investment and Jobs: How regulation of wholesale markets can stimulate private sector broadband investment and create jobs,” found that that investment rose in the five years immediately following the passage of the 1996 Telecommunications Act, as did employment in the telecom sector. However, the study found that in the years since 2001 when many of the competitive policies put in place were negated, principally the rules that required telephone companies to allow competitors to use their networks. The study is here.
The report was done by Economics and Technology, Inc., a well-respected economics firm that has been involved with the telecommunications industry for more than 30 years. The study will be submitted to the Federal Communications Commission by Public Knowledge and competitive carriers Cebyond, Covad Communications, Integra Telecom, Paetec Holdings and tw telecom. The paper recommended reinstating a “competition-friendly regulatory regime” to give competitors access to “reasonably priced wholesale broadband facilities.”
Gigi B.Sohn, president and co-founder of Public Knowledge said: “This study should finally lay to rest the question whether deregulation of the telephone industry helped or hurt this country. Investment, competition and job growth all were hurt by the deregulatory agenda of the last eight years. The report was correct to point out that 'Competition, not complacency, is the key driver of new capital investment.,' The FCC should do everything it can do in the National Broadband Plan to restore that competition. Consumers and the economy will all benefit from a pro-competitive policy.”
According to the report, the Bell companies “have repeatedly argued (without any quantification or other hard evidence) that requiring them to continue to lease facilities to competitors would actually chill investment – and that contention did have some superficial appeal. However, upon closer analysis, it is apparent that there is no economic or other quantitative support for this argument. If the TA96 wholesale services requirements had worked to dampen RBOC investment incentives as these companies continue to assert, then the removal of these requirements should have produced a large-scale increase in RBOC investment levels. In fact, the exact opposite occurred.”
The problem, the study found, was that: “Choking off potential competition not only works to foreclose investment opportunities for entrants, it also operates to eliminate the urgency of competitive responses on the part of the incumbents, enabling them to defer investments as well.”
The report found that the Bell companies “today are only investing about half as much in their networks as they were at the start of this decade. Looking back over the period from 1996 through the end of 2007 (the most recent year for which financial data is available), RBOC capital investments peaked in the 2000-2001 time frame at approximately $30-billion per year, and dropped off significantly after that. Total capital investments made during 2006 and 2007 was almost half of that amount – approximately $17.5-billion per year.”
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