Competition from Wireless, VoIP, Cable,
Already Constrains Prices
WASHINGTON, D.C. - Technological advances providing facilities-based competition from wireless, Internet voice, cable telephony, and electronic messaging services (not to mention new wireline competitors) have moved markets so close to a main goal of the 1996 Telecommunications Act – a competitive local marketplace– that a new report concludes "The time has come for full retail price deregulation of residential and business telecommunications networks." It will be the topic of a debate on Capital Hill tomorrow.
A Special Report being released today by The Progress & Freedom Foundation, “Trends in the Competitiveness of Telecommunications Markets: Implications for Deregulation of Retail Local Services,” finds that existing and potential competition from various providers acts as a constraint on prices charged by incumbents. This market “contestability” suggests there is ease of entry by competitors, putting consumers more firmly in the driver’s seat. The report’s authors are Randolph J. May, PFF senior fellow and director of communications policy studies, Richard O. Levine, director, LECG, Inc. and Joseph S. Kraemer, director, LECG, Inc. and PFF adjunct fellow.
Some regulators “apparently view residential customers as still bound to their local telephone company for traditional voice services,” May, Levine and Kraemer write. But “recent developments have proven that assumption false.” The Report finds that multiple providers have invested “substantial capital” in networks that allow them to compete directly with basic phone services; that new digital technologies (e.g. VoIP) “have reduced the capital needed for direct competition” (and made capital more mobile, in terms of “geographic and product markets”); and that customers exhibit an “increased willingness” to substitute wireless for wireline voice services, and electronic communications (e.g. e-mail and instant messaging) for traditional voice service.
According to the authors, “marketplace evolution generally proceeds through three stages – non competitive, contestable and effectively competitive,” and the evidence “demonstrates that local wireline service is at least already contestable.” That leads them to their conclusion that “retail rate deregulation…should begin right away.“ They believe consumers “will benefit greatly from the stimulation of investment and innovation in new communications and information services and equipment that will follow reliance on free market principles and adoption of deregulatory policies.” The report includes specific analyses of competitiveness in Texas, Massachusetts, Ohio, Idaho and Utah.
The Progress & Freedom Foundation is a market-oriented think tank that studies the impact of the digital revolution and its implications for public policy. The Foundation is a 501(c)(3) nonprofit organization founded in 1993.