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CONTACT: David Fish
August 6, 2004
(202) 289-8928
Study Questions Telecom 'Predation'
Adjudication, Not Regulation, Best Policy, Expert Says

WASHINGTON D.C. - Fears of 'predatory pricing' in today's telecommunications market have little basis in reality, and the best way to guard against the potential behavior is the threat of after-the-fact adjudication, not ongoing price regulation. Those are the primary findings of a study by two legal and policy experts, which warns that consumers and competition could be harmed by the price regulation obsession. One of those experts is the former chair of a state regulatory commission.

In "The Fallacy of Predation in Wireline Communications," Progress & Freedom Foundation President Raymond L. Gifford and Regulatory Counsel Adam Peters argue that "predation concerns in communications markets forestall, instead of facilitate, competition." They maintain that predation concerns in communications markets are vastly overblown.

"In the end, measures to impede predation keep consumers' rates higher than they should be, and shield firms from price competition," they write. "At most, predation claims in communications markets should be tried after the fact through an antitrust-like adjudicatory method, rather than the current practice of retail rate regulation and prohibitions on downward price movements by incumbents." Gifford chaired the Colorado Public Utilities Commission.

Gifford and Peters maintain that rivals use predation charges to egg-on regulators, with their motivation being "to protect themselves from vigorous price competition." They question the ability of regulators to tell the difference between price competition - one of the primary goals of the telecommunications deregulation and the 1996 Telecommunications Act - and predatory behavior.

"B ecause competition and predation often involve similar behavior - price cutting - even a well-informed, well-functioning regulator cannot tell the difference." they write. "There are substantial error costs to stopping competitive behavior for fear of predatory harm, particularly when that possibility is remote in the first place."

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