February 16, 2005

Costs and Consequences of Federal Telecommunications and Broadband Regulations

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In Costs and Consequences of Federal Telecommunications and Broadband Regulations, Mercatus Center Senior Research Fellow Jerry Ellig examines the effects economic regulation has had on telecommunications and broadband Internet service in the United States. This comprehensive study provides a unique examination of the costs of a set of federal regulations for consumers. While most economic studies of federal regulation examine direct costs paid by the regulated industry as a result of one or a few regulations, Ellig’s study assesses the effects of most major telecommunications regulations on consumers and society as a whole. Telecommunications regulation creates substantial costs for both consumers and society by distorting prices and limiting competition.

The study examines these effects of regulation on consumer welfare. The study also assesses benefits and other outcomes of regulation so they can be compared with the costs. "Our estimates find that federal telecommunications and broadband regulations cost consumers up to $105 billion annually in higher prices and forgone services," writes Ellig. "The most costly of all federal telecommunication regulations is spectrum management, costing consumers at least $77 billion in higher prices and foregone wireless services." While telecommunications regulation may be intended to stimulate competition, lower costs, and increase service, the study found that often the outcomes were just the opposite or were achieved inefficiently. This was most evident in an examination of universal service programs. Because the decision to subscribe to telephone service is not very sensitive to price, these programs increase subscription very little, at a cost of thousands of dollars annually per additional subscriber. In some cases, Congress will also be challenged to demonstrate that telecommunications-focused social programs have produced the desired outcomes. Most notably, there are no studies that measure whether or not regulations have caused the desired outcomes for the schools and libraries universal service program, local number portability, number pooling, satellites, or Communications Assistance for Law Enforcement for wireless communications.