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Information Economy Project

Lessons from the Telecom Wars

A Mini-Conference by the Information Economy Project - September 28, 2006, Arlington, Virginia

The policies introduced by the Telecommunications Act of 1996 have already witnessed generational turnover. Through 2004, policymakers struggled to craft network sharing mandates, giving local phone market entrants the "stepping stones" needed to compete. But then those rules collapsed, over-turned by federal courts. In the wake of the "unbundling" mandates, some see market rivalry flourishing. Others defend the scrapped regulatory regime as a missed opportunity. How we assess the path we've traveled, and how we view the opportunities now unfolding, will help define the regulatory models we embrace for communications networks of the future.

Conference Agenda:

2:00 p.m. - Panel 1: Inducing Competition in Phone Networks
Robert Crandall, Brookings Institution - Stepping Stones or Stumbling Blocks? - Mandatory Network Sharing in Telecom
Nicholas Economides, New York University
Marius Schwartz, Georgetown University - Telecom Competition and the 1996 Act: Reflecting Back and Looking Forward
Drew Clark, Center for Public Integrity (moderator)

3:40 p.m. - Panel 2: Broadband Deregulation and Net Neutrality
Paul Misener, - Net Neutrality: An Issue By Any Other Name
Thomas Hazlett, George Mason University - Empirical Evidence on the Effect of Broadband Regulation
Brian Carney, Wall Street Journal (moderator)

5:00 p.m. - Adjourn to Reception

Presentations from the Mini-Conference Lessons from the Telecom Wars, September 28, 2006, are summarized below:

"Stepping Stones or Stumbling Blocks? - Mandatory Network Sharing in Telecom" Robert Crandall, Brookings Institution. Lessons from the Telecom Wars (Mini-Conference September 28, 2006). From "Opening the Monopoly Bottleneck" to the "Stepping Stone Hypothesis." In many countries, the bottleneck was never a "monopoly" bottleneck, just an expensive one. Unbundling and network sharing are regulatory interventions of last resort where there is not a second, third or fourth network providing access to the same households or establishments. These network sharing arrangements were initially thought to be temporary - i.e., "stepping stones" - which could be abandoned once entrants built their own facilities. Today, network sharing appears to be a permanent fixture in the EU, Japan, and Australia. Has the Policy Worked? Are the Net Benefits Positive? Presumably, the objective is to accelerate competition, which, in turn, should reduce prices and/or provide innovative new services. If one believes the "stepping stone" hypothesis, the policy should also induce investment by entrants in new facilities as they step across the stones, climb the "ladder of investment," or whatever... But any regulatory intervention of this magnitude has offsetting costs: it reduces the incentives of the regulated (ILEC) firm to invest, innovate, and deploy its own new services. So, what is the evidence on these matters?

"Telecom Competition and the 1996 Act: Reflecting Back and Looking Forward" Marius Schwartz, Georgetown University. Lessons from the Telecom Wars (Mini-Conference September 28, 2006). This talk reflects back on the premises underlying the 1996 Act, its key provisions - especially on network sharing - and the track record. Summarizes briefly some of the lessons and their implications for policy going forward. The 1996 Act: Underlying Premises and Key Local Competition Provisions. Status quo is highly inefficient. Local access phone networks still predominantly a monopoly, with presumed inefficiencies. Monopoly invites costly and intrusive regulation: of rate Level (creating problems for incentives) and of rate Structure (inefficient cross-subsidies). Artificial separation of "local" from "long-distance" (LD) services to prevent leverage from monopoly local into potentially competitive LD.

"Net Neutrality: An Issue By Any Other Name" Paul Misener, Lessons from the Telecom Wars (Mini-Conference September 28, 2006). Outline: Pull is Fundamental; Changing Business Model?; Net Neutrality; The Disagreement; Get Paid?; Questions/Discussion.

"Empirical Evidence on the Effect of Broadband Regulation" Thomas Hazlett, George Mason University. Lessons from the Telecom Wars (Mini-Conference September 28, 2006). Net Neutrality: Market Evidence. Assessing the horribles; Business models developed via unregulated transactions; Unregulated transactions now a threat to those business models; Diagnosis; Are exclusive ISP deals anti-consumer?; Cures; Collateral damage?; Antitrust insufficient? 3 Quick VoIP Calls: VoIP QoS Regulation; mandate power, 5 9s; kill VoIP; E911?; Digital Phone service; dedicated cable LAN bandwidth; pro-competitive in voice market; Clearwire blocks Vonage; pro-competitive in broadband, voice.

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