Economic and Political Consequences of the 1996 Telecommunications Act

Abstract

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.