Economic and Political Consequences of the 1996 Telecommunications Act

See Crandall and Hazlett for a more recent analysis. This paper investigates the economic and political consequences of the 1996 Telecommunications Act by examining relevant marketplace data. In key segments of the telephone and cable television industries, the reform appears to be encouraging competition. Interestingly, stock price data indicate that the wave of "mega-mergers" in telecommunications, an unannounced and possibly unanticipated result of the Telecommunications Act, appears to be associated with consumer benefits. These improvements in competitiveness are modest by some standards, but impressive when judged against the results of other legislation with the announced goal of increasing market rivalry (e.g., the 1984 and 1992 Cable Acts). Federal policy makers also appear to be reaping benefits from the Telecommunications Act. The "deregulation"-which very cautiously opened markets, mandating extensive FCC rulemaking in the transition to competition-is associated with a sharp increase in political contributions to federal policymakers from telecommunications firms and executives. This is seen as an intended consequence of the act's major reform: Removing policy jurisdiction from Judge Harold Green's divestiture oversight and placing it in the hands of the Federal Communications Commission, a regulatory agency answerable to Congress.

The Case for Liberal Spectrum Licenses: A Technical and Economic Perspective

The traditional system of radio spectrum allocation has inefficiently restricted wireless services. Alternatively, liberal licenses ceding de facto spectrum ownership rights yield incentives for operators to maximize airwave value. These authorizations have been widely used for mobile services in the U.S. and internationally, leading to the development of highly productive services and waves of innovation in technology, applications and business models. Serious challenges to the efficacy of such a spectrum regime have arisen, however. Seeing the widespread adoption of such devices as cordless phones and wi-fi radios using bands set aside for unlicensed use, some scholars and policy makers posit that spectrum sharing technologies have become cheap and easy to deploy, mitigating airwave scarcity and, therefore, the utility of exclusive rights. This paper evaluates such claims technically and economically. We demonstrate that spectrum scarcity is alive and well. Costly conflicts over airwave use not only continue, but have intensified with scientific advances that dramatically improve the functionality of wireless devices and so increase demand for spectrum access. Exclusive ownership rights help direct spectrum inputs to where they deliver the highest social gains, making exclusive property rules relatively more socially valuable. Liberal licenses efficiently accommodate rival business models (including those commonly associated with unlicensed spectrum allocations) while mitigating the constraints levied on spectrum use by regulators imposing restrictions in traditional licenses or via use rules and technology standards in unlicensed spectrum allocations.

Is Federal Preemption Efficient in Cellular Phone Regulation

While many recent state-level efforts to regulate various aspects of the cellular phone industry have been abandoned in favor of federal regulations, other attempts by state regulators still exist. For this reason, Thomas Hazlett proposes that federal regulation is generally more appropriate than state-level action, due to the nature of the cellular industry. After a brief history of the industry, the author analyzes the pros and cons associated with state and federal regulation. The Article then proceeds to address the efficiencies created by national networks and proposes that the fragmentation of controlling regulatory power would reduce these efficiencies. Following a review of regulatory experiments, the author concludes that federal regulation is most appropriate and efficient, and that further state regulation of the cellular telephony could lead to undesirable balkanization of the industry

A Reply to Regulation and Competition in Cable Television

The Comment by Albert Smiley deals with both the economics and policy implications of my analysis. In regard to the economics, it questions the ability of competitive forces to improve consumer welfare in local cable television markets, citing a host of arguments in support of imperfect competition. As he readily concedes, however, the necessary experiment has not been run: what will happen when municipal entry barriers have been removed and firms are free to compete? I have tried to answer this question by way of induction through my analysis of particular markets. Based upon evidence that prices decline and services can improve upon competitive entry, I conclude that consumers would be well served by allowing unpredictable rivalry to proceed. Although one might argue that many or even most markets would fail to experience robust competition, consumers face virtually no downside risk. Thus, the experiment of competition is worth a try in all cable markets