Huge productivity gains possible through telecoms deregulation

High-speed communications technology has produced huge productivity gains for the U.S. economy in recent years by making large American companies more efficient producers. Replacing copper wire with fibre optic cable will produce even larger gains. But this is only possible with deregulation, says John Rutledge, an economist and chairman of Rutledge Capital.

Invasive regulations and price controls have slowed the investment necessary for the transition to fibre optics,
according to Rutledge.

Investment in the telecommunications infrastructure has collapsed from $118 billion in 2000 to just $45 billion in 2003.

Capital spending for wiring and switching infrastructure fell by almost two-thirds over the same period, from $85 billion to just $30 billion.

One-half of the nation's fibre-optic plants have closed and 75 percent of fibre-optic workers have been laid off.

Market capitalization in the telecom industry has fallen by $2 trillion.

The 1996 Telecom Act was supposed to deregulate the industry, but due to Federal Communications Commission interpretations of ambiguities in the law, we have had seven years of phony deregulation, says Rutledge. FCC regulations require local phone operating companies to provide access to their systems to all competitors at prices set by utility commissions. Local telephone companies are unlikely to make the investment to build and maintain the network if they cannot recover their costs, says Rutledge.

Source: John Rutledge, Telecom Deregulation: It's Time for that Call, Investors Business Daily, November 24, 2003.

For more on Regulations (Telephony) http://www.ncpa.org/iss/reg/

FMF Policy Bulletin\25 November 2003