A Little Analytical Honesty Please...

Abstract

Recently, the Bush Administration decided not to seek Supreme Court review of USTA v. FCC (USTA II), where the D.C. Circuit eviscerated the Federal Communications Commission's unbundling rules promulgated pursuant to the Telecommunications Act of 1996. According to the Bush Administration, we need not be concerned because we are in an era of rapidly changing new technologies like mobile wireless, high-speed fiber optics, and expanded broadband deployment and therefore negotiations are the best way to achieve a higher degree of market-based competition within the telecommunications industry.

In Phoenix Center Policy Perspective No. 04-03: A Little Analytical Honesty Please..., Phoenix Center President Lawrence J. Spiwak takes this statement head-on, and finds it wanting for empirical and analytical support. According to Spiwak, such a statement is nothing more than techno-babble and does not reflect an accurate picture of the state of competition and economic performance of the market. To the contrary, Spiwak points out that as there is no evidence that that so-called intermodal competition has any contestable effect on Bell company strategic behavior and significant asymmetrical bargaining power between CLECs and the Bells remains, the Bells' incentives and ability to exercise their tremendous market power to the detriment of U.S. consumer welfare remain very real. Accordingly, argues Spiwak, if we are going to take yet another bite at the apple in an attempt to draft sustainable rules, then we need to heed Justice Felix Frankfurter fifty year-old warning that we cannot view telecoms competition in an abstract, sterile way and be intellectually honest about the basic economics of the business.

Keywords: Telecommunications Act, intermodal competition, commercial negotiations

JEL Classification: K23, L11, L12, L13, L14, L16, L51, L96, O33