Costs and Consequences of Federal Telecommunications Regulations

The Study

• Examines the costs to consumers and outcomes for the public produced by ten major categories of federal telecommunications regulations.
• "Costs" include higher prices, the value of services that consumers forego as a result of the price increases, and the value of operating profits that some telecommunications firms forego when regulation reduces sales by raising prices.
• "Outcomes" are the benefits to the public produced, or harms to the public avoided, as a result of the regulations.

Our Findings

• Federal telecommunications regulations have significant costs.
• Regulation and taxation both redistribute wealth, but regulation does more harm per dollar redistributed. Almost all of the federal telecommunications regulations harm economic welfare more than the amount of general taxation that would be required to redistribute the same amount of wealth as the regulation.
• Information on regulatory outcomes is poor. For some regulations, outcomes are effectively unknown; for others, the best evidence shows that the regulation makes a negligible contribution to the outcome it is supposed to achieve. Only one regulation – enhances 911 has clear evidence of large positive outcomes.

By the Numbers

• Federal telecommunications regulations cost consumers as much as $100 billion annually in higher prices and the value of forgone services.
• The total cost of regulation to consumers and telecommunications firms is as much as $118 billion annually.
• The off-budget costs imposed by regulation were 83 times as large as the FCC’s actual expenditures on its regulatory functions, which totaled at most $1.2 billion in fiscal 2004.
• Spectrum management is by far the most costly regulation, accounting for $77.4 billion of the total consumer cost.

Conclusion

• A comprehensive reform to establish flexible and transferable spectrum use rights would deliver huge consumer benefits.
• The FCC’s Performance and Accountability Report needs to do a better job of measuring outcomes and demonstrating how the FCC’s activities have achieved those outcomes.
• If data collection and program evaluation can reduce regulatory costs or improve regulatory outcomes even modestly, they will be well worth the cost.

To read this entire report please refer to the PDF to the right or the January 2006 issue of the Federal Communications Law Journal.