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News Release
May 13, 2002
CONTACT: David Fish
(202) 289-8928

Eisenach: Supremes Flunk Econ. 101
Upheld Rules "Define Unreasonableness"

WASHINGTON, D.C. - The Supreme Court’s decision upholding the FCC’s “TELRIC” pricing rules may or may not be good law, PFF President Jeff Eisenach said today, but the economic reasoning behind the decision is fundamentally flawed.

One of the key arguments before the court was whether the TELRIC rules deter new investment in broadband facilities. In the decision, Justice Souter, writing for a five-Justice majority, said the court “had no idea” whether a different pricing scheme would have produced more investment, and found that the “substantial competitive capital spending” by CLECs prevented a finding that the rules are “unreasonable.”

Eisenach disagrees. “There is nearly unanimous agreement among economists that rules which require incumbent facilities to be sold at below-cost prices reduce the incentives for both incumbents and new entrants to invest. But you don’t have to be an economist to know the current rules have failed: Just look at the mess they have made in the telecom marketplace, where investors are in the process of losing literally hundreds of billions of dollars. As a matter of economic policy, the current rules are not just unreasonable – they define unreasonableness.”

Referring to a dissenting opinion by Justice Stephen Breyer, Eisenach said, “Once again, Justice Breyer has gotten it right, and the other justices have missed the point. We can only hope his more sophisticated understanding of the marketplace will someday filter into the thinking of the rest of the court.”

In support of his comments, Eisenach pointed to a number of recent statements from leading economists on the impact of the TELRIC rules and excessive unbundling requirements, including a filing by more than 20 economists before the FCC two weeks ago, another FCC filing by PFF scholars Larry Darby and Randolph May, and a letter sent by Eisenach and seven other leading economists to the Administration late last year.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



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