TCS Daily

New Study: Split Up The Bells To Spur Growth

By Duane D. Freese - October 5, 2001 12:00 AM

Will the local telephone monopoly limit economic recovery?

A new study by noted economists Robert E. Hall of Stanford and William H. Lehr of Columbia indicates that certainly may be the case.

The study, Rescuing Competition to Stimulate Telecom Growth, says the failure of the Bells to open up their local loops to competitors already has impeded growth "both of traditional telecom services and of broadband Internet services." More than $56 billion in investment by potential local competitors to the Bells after passage of the Telecommunications Act of 1996 has essentially gone for naught because the local Bells through high prices and poor service were able to close their networks to competitors.

Such telecommunications investment was part of the wave of investment in innovative information technologies that spurred the economic boom of the 1990s.

Stunted growth in telecom and the Internet, Hall and Lehr conclude, "is now threatening the continued investment, innovation, and growth of the new information-technology-centric economy."

The only solution that makes any sense, they say, is to separate, preferably structurally, the retail operations of the local and other telecommunications services from their wholesale operation of the local network.

Only then, they say, would the local phone network company "have a built-in incentive to provide equal service quality to all providers of retail communications services," including the Bells own retail operations.

On the other hand, "if policy fails to proceed as recommended, or worse, the Bells become even more effective in avoiding their obligations to open local markets, the Bells will have been rewarded for becoming even more entrenched monopolists," Hall and Lehr conclude. And "the consequent reduction in the competitiveness and performance of the entire telecom sector will inhibit the economic performance of the whole economy."

Watch for Tech Central Station Host James K. Glassman interview next week with Robert E. Hall about the study and what Congress and policymakers need to do now to spur growth in telecommunications and the economy. For a complete copy of Rescuing Competition to Stimulate Telecom Growth click here


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