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News Release
May 15, 2003
CONTACT: David Fish
(202) 289-8928

Federalism, Deregulation & Competition:
A Telecom Lexicon

Everything You Wanted to Know
About Regulation But Were Afraid to Ask

WASHINGTON, D.C. - We are in the "dissatisfaction stage" of competition, according to Progress & Freedom Foundation President Raymond L. Gifford. And one way to help get out of it would be for all players - regulators, the regulated and everyone caught in the middle - to speak the same language. For starters, Gifford believes the central concepts of federalism, deregulation and competition should be used more precisely.

In recent remarks, Gifford cited the misuse of 'federalism' during the FCC's Triennial Review debate, arguing that the primacy of the FCC or the states in regulation "has nothing to do with federalism in a constitutional sense." The Telecommunications Act of 1996 "invites states to be participants in a federal regulatory scheme, but on the terms set by the FCC." The appropriate term is 'prudential federalism' - "a judgment housed in and made by the FCC about how much discretion and involvement the state commissions will have with regard to a federal policy for local phone competition," he said. Gifford proposed a "waiver federalism" model, through which the FCC "sets a default national regulatory plan, and the states, within standards enunciated by the FCC, would have authority to apply to waive out of the default plan." He said this approach would benefit states, the FCC and consumers.

To have real deregulation, Gifford believes regulators must confront the retail rate structure. In transportation, natural gas and the airline industry, deregulation "emanated from federal authority overriding state authority," he said. Finally, real competition ("competitive market behavior" not "market share apportionment") will flow from deregulation. "We believe in competition not because we have some aesthetic preference for multiple players in a market, but rather because we believe competition best allocates society's resources by providing consumers with lower cost, more innovative products," he said.

In the end, regulators should simply deregulate: "Neither the FCC nor the state commissions are institutions particularly capable of making and instituting competition policy," he argued. "They were built to regulate monopolies." The goal is "to minimize error costs, which the market does better than regulators, and be modest about what we can accomplish through regulation."

The Progress & Freedom Foundation is a market-oriented think tank that studies the impact of the digital revolution and its implications for public policy. It is a 501(c)(3) nonprofit organization founded in 1993.



The Progress & Freedom Foundation