The Economics of Telecom Regulation: Promises and Pitfalls

Mar 10, 2005Mar 11, 2005


Session One: March 10, 2005
Exploring the Economics of Telecom Regulation
Dr. Jerry Ellig

Mercatus Center at George Mason University

Seesion Two: March 11, 2005
The Universal Service debate
Dr. Robert Crandall 

Brookings Institution

Almost ten years ago Congress overhauled the nation's telecommunications laws to infuse more competition into the long-regulated telecom market.  Since the 1996 Telecom Act was passed, however, the markets for local, long-distance, wireless, and broadband services have all changed.  The rise of new technologies, like Voice over Internet Protocol (VoIP), has rapidly made parts of the 1996 law appear outdated, and has led some policymakers to call for Congress to update the law.

Although the 1996 law was supposed to "deregulate" the industry, it contained features meant to shield certain customers from potentially increasing rates.  Under the law, local telephone companies are subject to price controls and other regulations, while long-distance telephone companies are required to pay access charges when they send or receive calls from local phone companies.  All companies are also 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.  Its subsidies to high-cost telephone carriers, schools, and libraries are financed through fees imposed on consumers of traditional services.  Consequently, as people move away from traditional phone service into new technologies, the funds available for universal service have declined.

In order to help policymakers sort through this and other telecom problems, the Mercatus Center at George Mason University is hosting a two-day seminar for congressional and agency staff that will address the broader economic implications of telecom regulation.  Questions we will address include:

  • What does economics teach us about the most effective ways to achieve telecommunications policy goals?
  • What are the economic effects of regulations such as spectrum management, long distance access charges, number portability, enhanced 911, and "unbundling" of incumbent local phone companies' networks?
  • How effective have telecommunications regulations been in achieving their desired outcomes?
  • Who benefits from the universal service policy? Who is paying this surcharge?  Is it broadly based or narrow?  How effective is the program at actually helping those it seeks to help?