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Telecommunications Reform in the United States: Promises and Pitfalls

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    (Georgetown University)

The United States Congress recently enacted sweeping legislation to overhaul the rules governing competition in telecommunications services. The Telecommunications Act of 1996 (see Congressional Record, 1996) is the first major rewrite of the Communications Act of 1934. It also supersedes the 1982 antitrust consent decree that broke up AT&T and barred the seven new regional Bell operating companies ("Bells") from manufacturing equipment and offering long-distance service. The stakes are high, as telecommunications ("telecom") are a critical element of a modern economy's backbone. The U.S. telecom sector's revenue in 1994 exceeded $200 billion: $150 billion in telephone service, $42 billion in broadcasting, and $28 billion in cable television (Economic Report of the President, 1996, chapter 6). The importance of the regulatory reforms in the 1996 Act as perceived by those in the best position to know--market participants--is reflected in the frenetic lobbying leading up to the Act (especially on its telephone provisions), and in the recent wave of corporate restructuring and shifting alliances reportedly driven by expectations of a new competitive environment. Regulatory reform enjoys broad support, but there is less agreement about its appropriate pace and nature. The road to reform holds both promises and pitfalls. This paper discusses the underlying economic issues, the progress made by the Act, and the challenges lying ahead as we move from regulated monopoly to competition. Although the U.S. is starting with regulated private monopolies, some of the discussion will be pertinent also for a transition to competition when starting with state monopolies.

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Paper provided by EconWPA in its series Industrial Organization with number 9706001.

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Length: 50 pages
Date of creation: 04 Jun 1997
Handle: RePEc:wpa:wuwpio:9706001
Note: Type of Document - WordPerfect; prepared on IBM PC ; to print on HP Laserjet III; pages: 50 ; figures: none. The views in this paper do not purport to represent those of any United States government agency. I have learned a lot from discussions with Tim Brennan, Gerald Brock, Richard Clarke, Bill Corbett, Robert Crandall, Tom Hazlett, Evan Kwerel, Roger Noll, George Slover, Lisa Sockett, Joe Stiglitz, Jean Tirole, Scott Wallsten, Leonard Waverman, John Windhausen, Peyton Wynns and many others. I wish I could blame them for any errors, but unfortunately must take full responsibility. Telecommunications and Energy in Systemic Transformation: International Dynamics, Deregulation and Adjustment in Network Industries Paul J.J. Welfens and George Yarrow, Eds., 1996, forthcoming, Heidelberg and New York: Springer
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  1. Schwartz, Marius, 1986. "The Nature and Scope of Contestability Theory," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 37-57, Suppl. No.
  2. Peter Cramton, 2002. "Spectrum Auctions," Papers of Peter Cramton 01hte, University of Maryland, Department of Economics - Peter Cramton, revised 16 Jul 2001.
  3. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-256, November.
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