The Heartland Institute, a policy think tank located in Chicago that focuses on issues of state and local policy, has started publishing a new telecom newsletter called IT Update. It’s got columns from a lot of knowledgeable telecom policy folks, including Alfred Kahn, Solveig Singleton, Sonia Arrison, and Clyde Wayne Crews.
The January issue has an article of mine that relates to the policy brouhaha in Illinois over the price that SBC is allowed to charge to CLECs for use of their facilities.
The fault lies in the misguided notion that regulators can measure or determine the costs of operating telephone networks. At best, they can get an approximate estimate of these dynamic and ever-changing costs. At worst, they will succumb to political pressures and set the rates too low. Our traditional cost-based regulatory approach is doomed to failure from the outset, because it is based on the false assumption that a political body can or would find the objective ?true cost? of providing telephone service. …
Instead of demonizing SBC or its competitors, we should ask why the FCC and the ICC have the presumption to claim they can amass all of the cost knowledge, actual or hypothetical, needed to make this bizarre regulation work.
I think regulators really need to read Coase’s The Nature of the Firm, in which Coase states that firms exist only because the cost of acquiring all inputs in markets is greater than the cost of producing and managing some of them inside the firm.
By forcing internal components of the firm to become market goods, regulators are invading a cost minimizing structure, and setting up something that cannot be forced to run efficiently.
That, and of course, proper apportioning of joint costs is just as unsolvable as finding the proper social welfare function.
Forcing line sharing with competitors is one way.
If they don’t share, how do other companies compete with the same technology for the same customers? How can competitors put in lines? They’re underground I think. Cell phone can compete because they use different technology.
What do you suggest as a replacement of that regulatory approach?
How about,
1) Let SBC master their own demons. They can raise rates and continue their lousy service all they like with or without regulation.
2) Take a deep breath and watch competitors enter the market in the form of Fixed Wireless Terminals and VOIP services.
3) Let consumers make the choice for what type of service they want to purchase. Let consumers keep their phone numbers regardless of carrier.
Doing this would seriously reduce the work load of the ICC in making costing decisions-which give incentive to the incumbent carrier to raise costs as high as possible.
Perhaps the market will drive technology to make a better home phone system, if we would give it a chance.
John Powers