Tuesday, February 22, 2005

Reading :: The impact of regulation and public policy on telecommunications infrastructure and U.S. competitiveness

Originally posted: Tue, 22 Feb 2005 22:02:08

Reading :: The impact of regulation and public policy on telecommunications infrastructure and U.S. competitiveness

by Shooshan & Jackson, Inc.

In 1989, the US was still fairly alarmed about the strength of Japanese and German economies relative to the US. In that context, this report urges the readers to make telecommunications infrastructure a priority. Although the US was well ahead of most countries in its infrastructure development, that development had slowed and deregulation had lessened its coherence. The US had long relied on private companies to develop infrastructure, and the authors acknowledge that this "has resulted in a telecommunications infrastructure that brings universal, affordable basic telephone service to nearly all U.S. citizens" (p.4). (This is the second articulation of universal service, in the terms I've been using as I've explored the concept.) Indeed, the US was "the first and only country to provide universal, affordable telephone service" (p.21). Yet that status was at risk.

The authors define "infrastructure" as "the physical plant (copper wire, switching facilities, optical fiber, coaxial cable and radio transmissions equipment, including satellite systems) which enables voice, data and video to move from one point to another, or among many points, by means of publicly- or privately-owned transmission systems" (p.6). Notice that this leaves behind Plain Old Telephone Service (POTS). The authors also include "piece parts" such as "lasers and semiconductors, as well as emerging technologies such as X-ray lithography and advanced television (ATV)" (p.6).

One impediment to getting these piece parts and infrastructure technologies to work together was the state of US regulation. As a result of the 1983 Modification of Final Judgment, Regional Bell Operating Companies (RBOCs) could not own cable TV systems or provide long distance (p.10). So these technologies were held apart through regulation. (In the wake of the Telecommunications Act of 1996, some of these restrictions have been lifted. Now you can get cable TV, high speed Internet access, and phone service from the same company.)

These regulations were put into place to guard against monopolies while encouraging investment in the infrastructure. But the authors suggest that "the current regulatory environment neither encourages such investments nor provides the best protection for consumers" (p.25). The traditional rate of return no longer provided adequate incentives due to the increased competition (p.25). And the rate-of-return regulation which guarded against fleecing the consumers had resulted in "perverse asymmetries": "shareholders do not reap the benefits of a highly profitable investment, and yet might very well bear the loss associated with an unsuccessful investment" (p.26). The authors conclude that regulatory alternatives should be pursued. >

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