Ellig Costs And Consequences Of Telecom Regulation Feb 2005Presentation 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
Reduce or redirect innovation
Encourage expenditures to capture wealth transfers
What are costs of regulation?
+ 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
Taxes and subsidies
Mandated services or functions
Taxes and subsidies
Long-distance access charges
Other intercarrier compensation
Unbundled network elements
DSL network sharing rules
Cable modem open access
Local number portability
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
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
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?