An Empirical Evaluation of 50-Years of Communications Policy: The Good, the Bad and the Ugly

Posted by Social Science Research Network

An Empirical Evaluation of 50-Years of Communications Policy: The Good, the Bad and the Ugly

Mark Cooper (Institute for Energy and the Environment)

Abstract:     It has been widely noted that 2016 is the 20th anniversary of the Telecommunication Act of 1996, considered the single most significant amendment to the Communication Act of 1934. It is less widely noted that it is the 40th anniversary of the Copyright Act of 1976, which also had a major impact on the communications space. And it is the 50-year anniversary of the start of the Computer Inquiries, which arguably had the largest impact of all.

Congress, the executive branch and the courts, have been active in making policy in the communications space in the past half century. A few examples of key decisions includes:

Courts: Red Lion, ATT Breakup, Brand X, BitTorrent, Verizon

Congress: Compulsory license, de/reregulation, spectrum auctions, Broadband data and improvement

Executive branch: Computer Inquiries, Carterphone, FynSin, ownership limits, spread spectrum, broadband classification, merger reviews.

These decisions provide natural experiments for studying the impact of policy, which in some cases switch back and forth within specific sectors. While there is no doubt that there has been immense progress in the communications sector, the question remains, which policies were most effective.

The paper adopts a traditional industrial structure/market performance approach used by liberal (e.g. Scherer and Ross, Shepherd) and conservative economists (e.g. Landes and Posner, Viscuci, et al.) It applies thresholds developed by antitrust authorities to characterize markets and the potential for abuse of market power.

Quantitative analysis includes concentration (based on HHI), Lerner Index components, e.g. price and cost trends, as well as comparative EBDITA measures. Indirect effects are also considered based on studies of macroeconomic models. Qualitative impacts are also considered.

Reviewing two dozen specific policies and their aftermath, this paper argues that the communications sector has been a schizophrenic, good news/bad news story. It is the center of the digital revolution, exhibiting the most dynamic, innovative progress of any sector of the U.S. and global economy (the good), but it has imposed immense, unnecessary costs on consumers and failed to achieve key economic and social goals (the bad). The ugly part is that the successes have been misinterpreted to defend the failures.

On purely economic grounds, progressive capitalist policies that put constraints on private property to stimulate competition and entrepreneurship had much larger, positive results than laissez faire policies that simply allowed the unrestrained pursuit of private interests.

The most prominent successful policies involved guaranteed access to choke points (open access and compulsory licenses), restraints on consolidation (denial of mergers, breakup of dominant incumbents) and the blocking of abuse of market power. While the most prominent harmful policies involved denial of access to critical choke points, unrestricted consolidation and premature deregulation or ineffective regulation of market power.

To the extent that progressive capitalist policies also promote important social goals, like universal service and diversity, which are not likely outcomes of market processes, they are even more deemed to be even more attractive.