News Releases
news coverage
News Media
PFF Highlights
News Release
November 14, 2002
CONTACT: David Fish
(202) 289-8928

Sic Transit Telecom: What Happened and Why?
May Says Irrational Exuberance at the FCC Played Big Role

WASHINGTON, D.C. - Irrational exuberance, corruption, erosion of investor confidence – each of these factors contributed to the current telecom slump that has already resulted in 500,000 jobs lost and at least 65 company bankruptcies. But heavy-handed and unsound telecom regulation in the nineties, which encouraged a boom/bust cycle, was a major contributor as well. That’s the view of Progress & Freedom Foundation Senior Fellow and Director of Communications Policy Studies Randolph J. May expressed in a new article, “They Just Want to Be Free.” He says the FCC must act quickly to spur a turnaround by implementing “real deregulation”.

“The overly intrusive regulatory regime put in place by the Reed Hundt-led FCC contributed to the dire situation in which the telecom industry finds itself,” May writes in Legal Times. “But the Michael Powell-led agency is also fairly subject to criticism for not moving more quickly to end the unsound policies.”

According to May, Hundt’s FCC helped cause the current telecom mess through its creation of virtually unlimited facility sharing rules that allowed new competitors to use incumbent carriers’ facilities at below market rates.

“The FCC’s implementing rules encouraged many new entrants and their investors to believe that the government would support even uneconomic entry into the marketplace…merely for the sake of toting up new ‘competitors’ on a scorecard,” May writes. “When investors came to realize that too many new competitors had been created to serve too few customers with too little revenue to spend – and that even more favorable government support policies were unlikely to ensure the survival of many of the new entrants – the telecom bubble deflated.”

May referenced a paper published in September by PFF President Jeffrey A. Eisenach and senior fellows Larry F. Darby and Joseph Kraemer, “The CLEC Experiment: Anatomy of a Meltdown,” In addition to policymakers, it blames investment bankers and managers in the “virtually inevitable” meltdown of competitive local exchange carriers.

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.



The Progress & Freedom Foundation