No, Telecom Progress Hasn't Slowed
from the wonders-of-competition dept
Megan McArdle points to a post by "cactus" claiming that progress in the telecom industry has slowed since the passage of the 1996 Telecom Act, and suggests that this is an argument against deregulation. Megan points out that cactus is likely exaggerating the responsiveness of Baby Bell customer service in the early 1990s. Here's another part of the argument that's really misguided:"My guess is that the improvement in technology available to the consumer from 1984 to 1996 is more significant than the improvement from 1996 to 2008. (Anyone remember using a BBS?) And the improvements on the cell phone side of the business seem to come mostly on the manufactured hand-unit, which was never regulated because it isn't a natural monopoly."The problem with this is that if we're talking about Internet access, there were no improvements at all between 1984 and 1996 in what phone companies offered to residential customers to get online. In 1984, if you wanted to get online, you got a second phone line and purchased a modem. In 1996, if you wanted to get online, you got a second phone line and got a modem. Now, the 1984 modem was probably 1200 bps, while the 1996 modem was probably 28,800 bps. And the 1984 online service was probably Compuserve, while the 1996 online service might have been a real ISP. But of course the Baby Bells weren't major players in the modem or online service markets during these years, and neither market was regulated. So touting them as evidence of the virtues of the pre-1996 regulatory regime, while dismissing the analogous improvement in cell-phone handsets since 1996, is disingenuous.
More broadly, it's just silly to claim that progress in the telecom industry has slowed over the last 12 years. Between 1984 and 1996, typical home online speeds increased from 1200 bps to 28.8 kbps, an impressive 24-fold improvement. By 2008, typical internet speeds were upwards of 3 mbps, an even more impressive 100-fold improvement. And 28.8 was the fastest you could go in 1996 without paying exorbitant charges for a dedicated data line. In contrast, some broadband providers are offering speeds as high as 20 mbps—a 700-fold improvement—for under $70/month. Now, I don't think improvements in the telecom market have been primarily due to the 1996 Telecom Act (which wasn't especially deregulatory anyway). Primarily, I think the progress was due to two things: cable companies getting into the broadband and phone markets (which which has created pressures for faster DSL and fiber roll-outs), and the government auctioning off spectrum to increase competition in the wireless market (which has provided additional competition for the Baby Bells' phone business). The former was likely sped along by some provisions of the 1996 Telecom Act, although the the "local loop unbundling" fiasco may have stunted development of DSL service during the same period. On the other hand, spectrum auctions were first authorized by Congress in 1993, so the latter can't be credited to the Telecom Act.
The bottom line, though, is that deregulation is most successful when it's designed to increase competition. A well-designed deregulatory scheme will enhance competition by removing barriers to entry and letting new firms enter the market. Poorly-designed "deregulation" will leave barriers to entry in place and simply relax regulations that limit the monopolist's ability to extract monopoly rents. There was some of each in the 1996 Telecom Act, but either way it's clear that progress continued at a brisk clip after 1996, and increased competition was a big part of that. If Congress wants that progress to accelerate over the next decade, it should look for ways to further increase competition in the telecom industry, not try to turn back the clock to the 1980s.
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Filed Under: deregulation, progress, regulation, telecoms
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A point..
So, just another argument in favor of what you are saying.
KB
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Telcom/Deregulation
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Innovation pre-1996
I'm also not sure what you mean by the local-loop-unbundling "fiasco." Are facilities-based (other than the loop) CLECs not competition? The UNE fiasco represented, in large part, ILECs' unwillingness to accept TELRIC plus a markup for their network elements, lest entrants compete prices to those levels, and persuading sympathetic courts that it was "unfair" for that to happen to them.
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Telecom Innovation
We have had a poorly designed Unregulation system in the US - entirely the fault of Powell and Martin. We needed Competition and we needed an FCC that would force the ILEC's to open the networks AND force the CLEC's to live up to its promise to move to facilities, which they did not do.
Telecom is all about the Arbitrage play for how to con people out of money. Ask Vonage or SunRocket or MagicJack.
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Innovation since 1996
Really. Try hooking up your FTTH ONT to a POTS loop and see how it works. Or your VDSL modem. I guess the 80 wavelengths of 40 Gb/s capacity carrying the internet traffic across the country are CPE as well. Plus the gigabit routers that get the bits from Techdirt's hosting site to your computer - all because of Carterphone.
Oh, and Local Loop Unbundling only "stunted" DSL because the telcos decided that if the rules weren't slanted their way, they weren't going to play. They could have rolled out DSL service at any time -- I remember reading requirements for ADSL in the late 1980s -- but chose not to because they didn't like the rules, so DSL service stayed on the sidelines until they managed to get the UNE-L rules sufficiently gutted by the courts.
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Wireless and loop unbundling
Second, with respect to wireless, competition and associated innovation was jumpstarted in 1993, when Congress established a national, uniform, deregulatory, regulatory structure for wireless by, among other things, preempting state and local regulation of wireless rates and entry conditions, directing the FCC to forebear from subjection wireless to unnecessary regulation, and establishing a federal policy of promoting competition in wireless markets. The auctioning of PCS spectrum in 1996 was another significant step as well. At about the same time, digital technology dramatically reduced the amount of radio spectrum required to carry a wireless call, increasing the capacity of the carriers' existing licenses severalfold.
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So why do we lag behind other developed nations?
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Just a notelet for readers who may not have read cactus's original post on Angry Bear -- chiefly it had to do with the lousy customer service he received in trying to get a new net hookup: In my experience a lot of the service people for utilities like this are actually "independent contractors" which is code for "underpaid people for whom we are not responsible". I don't know if this was the case with Time Warner, but it can be a problem.
BTW, my first so called net connection circa 1989 was membership in a few BBS's, at 300 baud. You could watch the letters march across the screen.
Noni
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TELRIC
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More TELRIC
The effects of TELRIC pricing on competition and efficiency are more complicated. Pricing UNEs at TELRIC should mostly dissipate monopoly rents (assuming the markup reflects efficiently incurred overheads), which usually would be looked on kindly from the perspective of competition policy. That will discourage some entry, but the entry that occurs should be at least statically efficient (with costs not exceeding telephony LRIC); and meanwhile you're paying the ILEC as if the market were contestable until such an entrant comes around. Allow UNE pricing at incumbents' actual costs and you may get entry from statically inefficient competitors and meanwhile would also expect be paying the incumbent prices reflecting at least some exercise of market power. You then cross fingers and hope that the market structure provides dynamic efficiency benefits once there's a competitive network in place.
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