Darby Outlines High Costs of Low UNE Rates
WASHINGTON, D.C. - With the Federal Communications Commission expected to issue new rules pertaining to the unbundled network element platform (UNE-P) later this year or early next, a top telecommunications expert is warning regulators and policymakers of “the unequal costs of policy errors.” Reminding the policy community of the economics of investment decisions – and how regulation affects both – he argues that the long-term costs to consumers of setting the rates competitors must pay incumbents for the use of their facilities are higher if set ‘too low’ than if set ‘too high’.
According to Larry F. Darby, a Progress & Freedom Foundation senior fellow who took part in a recent panel discussion sponsored by Virginia’s State Corporate Commission and the Virginia Telecommunications Industry Association, the costs of driving prices ‘too low’ in order to assist such companies as AT&T and MCI are “less investment, less innovation and fewer new services”, a “capacity shortage” and “service quality problems”; the cost of setting them ‘too high’ are “higher short term rates for some users”, “less market share diversion to entrants” and “fewer competitors”. Citing a variety of analysts, Darby maintains that UNE-P rates have a negative impact on investment in facilities (by both incumbents and competitors), directly challenging the arguments made by UNE-P defenders.
(In effect, the FCC determines the price competitors must pay for network elements by setting the methodology by which state regulators establish local prices. The agency also effects the equation by determining which elements are to be unbundled.)
Darby urged policymakers and industry participants at the session to “look at what the capital markets are saying” and to recall what AT&T’s Michael Armstrong said in 1998: “No company will invest billions of dollars to become a facilities based broadband service provider if competitors who have not invested a penny in capital nor have taken an ounce of risk can come along and get a free ride on the investment risks of others.”
Darby and PFF Senior Fellow and Director of Communications Policy Studies Randolph J. May have filed comments and reply comments in the FCC’s ongoing UNE proceeding.
The Progress & Freedom Foundation is a market-oriented think tank that promotes innovative policies for the digital age. It is a 501(c)(3) research & educational organization.