Ellig Texas Telecom Presentation Jan 2005

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Ellig Texas Telecom Presentation Jan 2005

  1. 1. Texas Telecommunications: Everything’s Dynamic Except the Pricing Jerry Ellig Senior Research Fellow Mercatus Center at George Mason University Prepared for the Texas Public Policy Foundation Policy Orientation for State Legislators January 2005
  2. 2. At a glance … <ul><li>Regulatory reform has benefited consumers of most telecom services </li></ul><ul><li>Main exception: Local </li></ul><ul><li>Why? </li></ul><ul><li>What can be done about it? </li></ul>
  3. 3. Equipment competition legal in 70s <ul><li>1972-87: Phone and PBX prices fell 6-7% annually </li></ul><ul><li>Phone prices fell by half in 10 years after 1984 AT&T breakup </li></ul><ul><li>BLS real consumer price index for telecom equipment fell by half since 1997 </li></ul>
  4. 4. Long-distance competition legal in late 70s
  5. 5. Wireless spectrum doubled 1993-95 <ul><li>1995-99: Prices fell 17% annually </li></ul>
  6. 6. Cell phone subscribers outnumber incumbent telcos’ customers 9.16 13.54 2.17 11.37 2001 11.33 10.13 Mobile wireless 12.54 12.95 Total wireline 2.27 2.18 Competitor wireline 10.27 10.77 Incumbent wireline 2003 2002 Texas Subscribers (millions)
  7. 7. Internet prices continue to fall
  8. 8. Broadband continues to grow
  9. 9. Local residential rates stagnate (frozen by law in 1995)
  10. 10. Why? <ul><li>Large incumbents’ basic local rates fall $600 million short of covering costs </li></ul><ul><li>Shortfall covered by </li></ul><ul><ul><ul><li>Mandated excessive intrastate long-distance access charges ($382 million) </li></ul></ul></ul><ul><ul><ul><li>Higher charges for vertical features (eg call waiting) </li></ul></ul></ul><ul><ul><ul><li>Universal service funding for high-cost and rural service </li></ul></ul></ul>
  11. 11. How can competitors compete? <ul><li>Lease incumbent’s network at regulated rates even further below cost than the retail price </li></ul><ul><li>Compete only for customers who want packages of services </li></ul><ul><li>Use a lower-cost technology </li></ul><ul><li>Use a technology that creates more value for consumers than incumbent’s </li></ul>
  12. 12. Avoid stifling new technologies <ul><li>Voice over Internet Protocol </li></ul><ul><li>Broadband </li></ul><ul><li>Cable telephony </li></ul><ul><li>Wireless </li></ul>
  13. 13. Remove cross-subsidies <ul><li>Consumers gain $89 million if intrastate access charges cut to interstate levels </li></ul><ul><li>Cap basic local phone rates at cost or deregulate </li></ul><ul><li>Avoid bailing out incumbents if deregulated rates fail to cover historical costs </li></ul>
  14. 14. Reform universal service <ul><li>Avoid distorting consumer decisions via funding method </li></ul><ul><li>Target funding </li></ul><ul><li>Avoid rewarding companies for increasing costs </li></ul><ul><li>Discontinue wireline subsidies where good alternatives exist </li></ul><ul><li>Define desired outcomes and measure whether program is causing them to occur </li></ul>
  15. 15. For further information … <ul><li>Robert W. Crandall and Jerry Ellig, “Texas Telecommunications: Everything’s Dynamic Except the Pricing,” TPPF Research Report (January 2005). </li></ul><ul><li>Available at www.TexasPolicy.com </li></ul>

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