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Ellig Costs And Consequences Of Telecom Regulation Feb 2005

Ellig Costs And Consequences Of Telecom Regulation Feb 2005






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    Ellig Costs And Consequences Of Telecom Regulation Feb 2005 Ellig Costs And Consequences Of Telecom Regulation Feb 2005 Presentation Transcript

    • Costs and Consequences of Telecom and Broadband Regulations Jerry Ellig Senior Research Fellow
    • $105 billion annually at stake for consumers Unbundled network elements Local number portability Enhanced 911 Satellite regulation Resale of incumbent’s local service Number pooling and CALEA Long-distance access charges Broadband regulatory uncertainty Universal service Spectrum management Cost to consumers of these regulations…
    • How much? $11.1 billion Unbundled network elements $1.7 billion Local number portability $1.2 billion Enhanced 911 Unknown Satellite regulation $21 million Resale of incumbent’s local service $800 million Number pooling and CALEA $3.6 billion Long-distance access charges $4.5 billion Broadband regulatory uncertainty $4.4 billion Universal service $77 billion Spectrum management
    • Regulatory costs dwarf FCC spending
      • FCC outlays 2004: $361 million
      • FCC 2004 net cost of 3 regulation-related strategic goals: $1.2 billion
      • Excess burden of taxation: $144-480 million
    • Potential effects of economic regulation
      • Force monopoly to charge “competitive” price
      • Transition from monopoly to competition
      • Price below competitive level
      • Create market power/raise price
      • Inflate costs
      • Reduce or redirect innovation
      • Encourage expenditures to capture wealth transfers
    • What are costs of regulation?
      • Wealth transfers
      • + Forgone consumer surplus
      • = Total cost to consumers
      • Forgone consumer surplus
      • + Forgone producer surplus
      • = Value of forgone output (“excess burden”)
      • Wealth transfer + excess burden is widest measure
    • How do the costs compare? $120 billion Total cost to society (Assumes wealth transfer is wasted) $41 billion “ Excess burden” (Forgone consumer + producer surplus) $105 billion Total cost to consumers (Assumes wealth transfer is wasted or goes to firms) $25 billion Forgone consumer surplus $75 billion Wealth transferred
    • Four kinds of regulations
      • Entry barriers
      • Taxes and subsidies
      • Network sharing
      • Mandated services or functions
    • Entry barriers
      • Spectrum
      • Satellite
    • Taxes and subsidies
      • Long-distance access charges
      • Other intercarrier compensation
      • Rural subsidies
      • Low-income subsidies
      • Schools/libraries program
    • Network sharing
      • Unbundled network elements
      • Resale
      • DSL network sharing rules
      • Cable modem open access
    • Mandated services/functions
      • 911/Enhanced 911
      • CALEA
      • Local number portability
      • Number pooling
    • Compare costs with outcomes
      • Benefit: An increase in economic efficiency (reduction in deadweight loss)
      • Outcome: A result policymakers and/or the public seeks to achieve
    • Excess burden %s 61% Unbundled network elements 62% Local number portability 60% Enhanced 911 N.A. Satellite regulation 67% Resale of incumbent’s local service 62% Number pooling and CALEA 44% Long-distance access charges N.A. Broadband regulatory uncertainty 43-62% Universal service 56% Spectrum management Max 40% General federal taxation
    • Spectrum allocation FCC allocation not necessary to prevent interference Prevent signal interference Tends to reduce consumer welfare Consumer welfare Implies no particular outcome “ Public interest” Outcome Achieved Intended Outcome
    • Broadband unbundling Unknown Reduce price Appears to discourage investment Encourage deployment Outcome Achieved Intended Outcome
    • Universal Service Unknown Improved educational outcomes Unknown Redistribution to rural consumers $5155-20,000 per added subscription Increase rural subscription Lifeline: $99/household Linkup: $18/household Redistribution to poor $1581-2200 per added subscription Increase low-income subscription Outcome Achieved Intended Outcome
    • Long-distance access charges $24 average per low-income household Redistribution to poor Negligible or negative Increased low-income subscription Negligible or negative Increased local subscription Outcome Achieved Intended Outcome
    • Unbundled network elements Unlikely when reselling incumbent’s services Innovative new services Each $ gain costs $26 Increased economic welfare Substituted for facilities-based competition Increased competition $9.7 billion transferred, but inefficiently Lower prices Outcome Achieved Intended Outcome
    • Local number portability Unknown Increased competition/ consumer welfare Outcome Achieved Intended Outcome
    • Enhanced 911 $1000 cost savings per cardiac patient Reduced health/safety costs Big reductions in cardiac mortality Improved health/safety Outcome Achieved Intended Outcome
    • Misc. wireless mandates Unknown CALEA – improved law enforcement/national security Unknown Number pooling – improved utilization of numbers Outcome Achieved Intended Outcome
    • Resale of incumbent’s local service Unlikely when reselling incumbent’s services Innovative new services Has not been attractive entry strategy Increased competition/ consumer welfare Outcome Achieved Intended Outcome
    • Satellite regulation
      • Neither costs nor outcomes for consumers are well known.
    • Key questions to ask
      • Where has policy created barriers to competition?
      • Is use of “taxed” services very responsive to price changes?
      • What outcomes do we seek to achieve?
      • How will we measure those outcomes?
      • What evidence shows whether changes in outcomes were caused by policies?