Successes and Failures in Regulating and Deregulating Utilities

Successes and Failures in Regulating and Deregulating Utilities

Evidence from the UK, Europe and the USA

Edited by Colin Robinson

This book is the latest annual review of utility regulation and deregulation, published in association with the Institute of Economic Affairs and the London Business School

Chapter 1: The failure of good intentions: the collapse of American telecommunications after six years of deregulation

J. Gregory Sidak

Subjects: economics and finance, competition policy, public finance, public sector economics


J. Gregory Sidak The United States has spent more than six years trying to deregulate telecommunications. We are not in the ʻtransitionʼ any longer. It is time to take stock. I address three topics. The first is the administrative cost of deregulation. Next, I examine the consequences of the Federal Communications Commissionʼs use of a competitor-welfare standard when formulating its policies for local competition. Finally, I speculate about how the WorldCom bankruptcy will affect the telecommunications industry and its regulation. THE ADMINISTRATIVE COST OF DEREGULATION My first point is a simple one: deregulation has actually increased regulation. That is not a reason to reject deregulation, but it may be a useful indicator of whether we are on the right trajectory for true deregulation. Consider first the growth of regulatory inputs. Figure 1.1 shows the FCCʼs annual budget in inflation-adjusted dollars. Real expenditures quickly rose by about one-third after enactment of the Telecommunications Act of 1996, from $158.8 million to $211.6 million, and they have stayed at that higher level. The increase is 37 per cent if one includes 1995 in the post-deregulation period, perhaps on the rationale that Congress and the FCC both saw new legislation coming and sought to get an early jump on some of the expected regulatory detail. What happened to regulatory output? The FCC, of course, produces many regulatory products. Some, such as inaction, are particularly difficult to quantify. But a simple, albeit imperfect, measure of output is the number of pages per year...

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