No, Telecom Progress Hasn't Slowed

from the wonders-of-competition dept

Megan McArdle points to a post by "cactus" claiming that progress in the telecom industry has slowed since the passage of the 1996 Telecom Act, and suggests that this is an argument against deregulation. Megan points out that cactus is likely exaggerating the responsiveness of Baby Bell customer service in the early 1990s. Here's another part of the argument that's really misguided:
"My guess is that the improvement in technology available to the consumer from 1984 to 1996 is more significant than the improvement from 1996 to 2008. (Anyone remember using a BBS?) And the improvements on the cell phone side of the business seem to come mostly on the manufactured hand-unit, which was never regulated because it isn't a natural monopoly."
The problem with this is that if we're talking about Internet access, there were no improvements at all between 1984 and 1996 in what phone companies offered to residential customers to get online. In 1984, if you wanted to get online, you got a second phone line and purchased a modem. In 1996, if you wanted to get online, you got a second phone line and got a modem. Now, the 1984 modem was probably 1200 bps, while the 1996 modem was probably 28,800 bps. And the 1984 online service was probably Compuserve, while the 1996 online service might have been a real ISP. But of course the Baby Bells weren't major players in the modem or online service markets during these years, and neither market was regulated. So touting them as evidence of the virtues of the pre-1996 regulatory regime, while dismissing the analogous improvement in cell-phone handsets since 1996, is disingenuous.

More broadly, it's just silly to claim that progress in the telecom industry has slowed over the last 12 years. Between 1984 and 1996, typical home online speeds increased from 1200 bps to 28.8 kbps, an impressive 24-fold improvement. By 2008, typical internet speeds were upwards of 3 mbps, an even more impressive 100-fold improvement. And 28.8 was the fastest you could go in 1996 without paying exorbitant charges for a dedicated data line. In contrast, some broadband providers are offering speeds as high as 20 mbps—a 700-fold improvement—for under $70/month. Now, I don't think improvements in the telecom market have been primarily due to the 1996 Telecom Act (which wasn't especially deregulatory anyway). Primarily, I think the progress was due to two things: cable companies getting into the broadband and phone markets (which which has created pressures for faster DSL and fiber roll-outs), and the government auctioning off spectrum to increase competition in the wireless market (which has provided additional competition for the Baby Bells' phone business). The former was likely sped along by some provisions of the 1996 Telecom Act, although the the "local loop unbundling" fiasco may have stunted development of DSL service during the same period. On the other hand, spectrum auctions were first authorized by Congress in 1993, so the latter can't be credited to the Telecom Act.

The bottom line, though, is that deregulation is most successful when it's designed to increase competition. A well-designed deregulatory scheme will enhance competition by removing barriers to entry and letting new firms enter the market. Poorly-designed "deregulation" will leave barriers to entry in place and simply relax regulations that limit the monopolist's ability to extract monopoly rents. There was some of each in the 1996 Telecom Act, but either way it's clear that progress continued at a brisk clip after 1996, and increased competition was a big part of that. If Congress wants that progress to accelerate over the next decade, it should look for ways to further increase competition in the telecom industry, not try to turn back the clock to the 1980s.


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  1. identicon
    Dick Buckley, 27 Jul 2008 @ 9:29pm

    TELRIC

    As Chris said UNE-P was a disaster because it allowed CLECs to compete without building any OSP facilities. They were simply reselling existing plant while bad mouthing the ILEC as having antiquated plant. And contrary to Tom Bozzo's claim that the ILECs were unwilling to accept TELRIC plus a markup, TELRIC includes a markup. The real question was, based on the TELRIC rules, what was the cost of a UNE. If you believed AT&T, it was half of what the ILEC claimed it was. I testified in about 10 Qwest states on the cost of a loop and never encountered a sympathetic court. The state commissions had a bias toward lower costs (in line with CLEC models) because they felt it would encourage competition. Reselling someone else's plant is not competition and does not encourage building a competitive network. Wireless and cable were the only true local loop competitors. CLECs were short term arbitrage on regulated rates.

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