Recent Mergers Point to a Better Way

SAN FRANCISCO – Current regulatory policies in the telecom sector are outdated and imposing heavy economic and social costs on consumers, according to Crossed Lines: Regulatory Missteps in California Telecom Policy, released today by the Pacific Research Institute (PRI).

In addition to examining the regulatory burden, the study explains how to revamp policy. Its message is especially timely. “Recent merger activity in the telecom sector is shaking up old business plans and moving us beyond obsolete ways of thinking,” says co-author Sonia Arrison, director of Technology Studies at PRI.

Crossed Lines reveals how after the signing of the 1996 Telecommunications Act, poorly written federal guidelines and zealous state regulators created a false competition scheme known as “forced-access.”

By requiring incumbent telephone companies to share their networks with rivals at below-cost rates, the policy brought California’s telecommunications industry to the brink of disaster by discouraging new infrastructure upgrades and corporate investment.

As a result of forced-access, so-called competitors abandoned building their own networks in the state, serving a mere 28 percent of customers with their own equipment by mid-2004.

Facing ballooning maintenance costs and reduced profitability, incumbent telephone companies retreated from the traditional telephone market. For example, SBC slashed investment in California from eight billion dollars in 2002 to five billion dollars in 2003.

“Forced-access rendered the traditional telephone market unattractive and unprofitable,” said Arrison. “As state and federal lawmakers now consider new industry regulations, they should heed the lessons of the Telecom Act and foster true consumer choice,” she concluded.

This month marks the ninth anniversary of the 1996 Telecom Act. By tracing industry developments within that short period, Crossed Lines vividly demonstrates the rapid pace of industry innovation and shifting market trends.

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