Calling All Policymakers: The Economics of Telecom

Jan 31, 2006Feb 02, 2006
B-339 Rayburn House Office Building House Office Building


Session One: Tuesday, January 31, 2006
Spectrum Policy and the Digital TV Transition
Dr. Thomas Hazlett 
Professor of Law and Economics
George Mason University

Session Two: Wednesday, February 1, 2006
Universal Service Programs and Performance Measures
Dr. Jerry Ellig 
Senior Research Fellow
Mercatus Center at George Mason University 

Session Three: Thursday, February 2, 2006 
Cable Franchising and A La Carte Programming 
Dr. Thomas Hazlett 
Professor of Law and Economics
George Mason University

As we approach the 10th anniversary of the 1996 Telecom Act, the telecommunications industry is changing in dramatic ways. Gone are the days when it was easy to distinguish between "information" and "telecommunications" technology. The rise of new technologies, like Voice over Internet Protocol (VoIP) and IPTV, has rapidly made parts of the 1996 law appear outdated, and has led many policymakers to call for reforming the way in which the telecommunications industry is regulated.

Under the 1996 law, local and long-distance telephone companies are required to contribute to universal service programs that subsidize local telephone service to households in rural, high-cost, and poor areas. Today, however, the universal service fund is running into problems. As people move away from traditional phone service into new technologies, the funds available for universal service have declined. Policymakers face the challenge of identifying new ways to finance telephone subsidies for poor and rural households while minimizing economic distortions and accurately measuring whether or not the programs achieve their desired outcomes.

Another issue facing policymakers is spectrum policy. One recent study estimated the cost of current spectrum management at $77 billion to consumers in higher prices and foregone wireless services. Congress must decide whether to set a firm date by which TV broadcasters must end their analog broadcasts and return the spectrum used for them. While this could free up spectrum for use by first responders and for new wireless services, many are concerned about what happens when Grandma's analog television no longer works.

The rise of new technology has also led to the prospect of companies providing cable television services through broadband lines and networks. Many local governments want to force these companies to negotiate local franchising agreements, similar to the agreements already in place with traditional cable providers. However, some policymakers want to preempt the local governments from doing so in order to speed up the delivery of these new services. Some policymakers also want to force cable providers to offer "a la carte" channel services, so that consumers will be able to purchase only the channels that they actually watch.

In order to help policymakers sort through these and other telecom issues, the Mercatus Center will host a three-day course for congressional and agency staff that will address the broader economic implications of telecom regulation. Questions to be addressed include:

  • What does economics teach us about the most effective ways to achieve telecommunications policy goals?
  • How does spectrum policy affect the telecommunications industry and the overall economy? What are the benefits and drawbacks of forcing broadcasters to switch to digital programming? How do you deal with the inevitable result that some consumers will need to purchase new technology?
  • Who benefits from the universal service policy, and at what cost? How can you develop performance measures that accurately measure the effectiveness of these programs? Why are performance measures important?
  • Should the federal government preempt local governments from forcing new providers of cable services over broadband lines to negotiate local franchise agreements? Does allowing these companies to avoid the cost of negotiating the agreements give them an unfair advantage over traditional cable providers?
  • Does forcing cable providers to offer a la carte channels help or hurt consumers?