[Congressional Record Volume 141, Number 48 (Wednesday, March 15, 1995)]
[Extensions of Remarks]
[Pages E604-E605]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


           THE ECONOMIC IMPACT OF COMMUNICATIONS DEREGULATION

                                 ______


                             HON. TOM DeLAY

                                of texas

                    in the house of representatives

                        Wednesday, March 15, 1995
  Mr. DeLAY. Mr. Speaker, Government regulations impose a tremendous 
burden on our Nation's economy. Excessive regulations result in higher 
prices for American consumers and fewer jobs for American workers. One 
of the primary goals of the Contract With America is to reduce onerous 
Government regulations and break down unnecessary barriers to 
competition. In that regard, I was especially interested to learn of a 
new study released by the independent Wharton Econometrics Forecasting 
Associates [WEFA] Group. Their study documents the positive impact that 
would result from greater competition in the U.S. communications 
industry. They conclude that full, immediate, and simultaneous 
competition in all communications markets would result in more jobs, 
lower prices, and a stronger economy. I urge my colleagues to carefully 
consider the results of the WEFA study as we continue to more forward 
with our efforts to deregulate our Nation's economy.
  Economic Impact of Deregulating the U.S. Communications Industries--
                         Highlights of Findings


                                overview

       The 104th Congress is in the process of reforming the 
     nation's outdated communications laws. A fundamental concern 
     in this process involves when and to what extent cable TV, 
     long distance and local telecommunications markets should be 
     opened to competition. Opinions range from opening all 
     markets immediately to creating lengthy approval processes 
     for competitive entry.
       A study released by renowned independent economic 
     forecasting firm, The WEFA Group, quantifies the impact that 
     various policy options will have on diverse economic 
     indicators, including job-creation, economic growth, 
     technological innovation, consumer savings and the balance of 
     trade. Specifically, the WEFA study compares three 
     approaches:
       Immediate, full competition--removal of legal and 
     regulatory barriers to market entry; change from traditional 
     rate-of-return regulation to price-cap regulation for any 
     noncompetitive service; complete deregulation of competitive 
     services; and, all markets open simultaneously on January 1, 
     1996.
       Competition phased in over two to three years--local 
     competition occurs a year ahead of long distance competition, 
     with full competition by 1998.
       Competition phased in over four to five years--local 
     competition occurs a year ahead of long distance competition, 
     with full competition by 2000.


                         findings and analysis

  I. Immediate competition means new jobs, economic growth, consumer 
                                savings

       Full, immediate and simultaneous competition in all 
     communications markets will result in more jobs, lower prices 
     and a stronger economy than any other option. The study finds 
     that immediate and full competition in the telecommunications 
     industry will achieve:

                                New jobs

       3.4 million additional U.S. jobs would be created over the 
     next ten years as a result of full, immediate competition in 
     all communications markets. These jobs would be spread across 
     all states and all major industry groups, including: 498,000 
     new jobs in manufacturing; 423,000 new construction jobs; 
     923,000 new jobs in wholesale and retail trade; 1.4 million 
     new jobs in the service sector.

                            Economic growth

       Once competition is brought fully and immediately to the 
     communications industry, the benefits of lower prices, 
     enhanced services and newer technology will boost economic 
     activity throughout the economy. Specifically, within ten 
     years, America would experience: $298 billion increase in 
     annual Real Gross Domestic Product; $162 billion increase in 
     annual Real Personal Consumption; $14 billion improvement in 
     annual balance of trade; $140 billion improvement in the 
     annual national budget deficit; an average increase of $850 
     in the per year disposable income of each U.S. household.

                            Consumer savings

       American consumers would receive substantial benefits from 
     immediate competition in all communications markets. The 
     study concluded that competition, which will bring greater 
     network efficiencies, including bandwidth expansion and 
     increased use of digital services, will result in a 23% 
     decrease in telecommunications prices over 
     [[Page E605]] the next ten years. A large portion of this is 
     due to a 35% decline in long-distance toll rates over the 
     first five years of deregulation. Specifically, immediate 
     competition would:
       Save consumers nearly $550 billion over the next ten years 
     from lower telecommunications rates, including: $333 billion 
     in consumer savings from lower long distance rates; $107 
     billion in consumer savings from lower cellular rates; $78 
     billion in consumer savings from lower cable TV rates; $32 
     billion in consumer savings from lower local rates.

 II. Delayed competition means fewer jobs, slower economy, higher rates

       In addition to the immediate competition model, the study 
     forecasts the economic effect of two other models, assuming 
     that it takes three and five years, respectively, to achieve 
     full competition--including removal of entry barriers, change 
     from rate-of-return regulation to price-cap regulation from 
     rate-of-return regulation for noncompetitive services, and 
     deregulation of competitive services.
       A three-year delay in full competition would result in the 
     creation of 1.5 million fewer jobs than would immediate 
     deregulation over the next five years. A five-year delay 
     would mean 1.9 million fewer jobs over the next five years.
       A three-year delay in deregulation would result in $137 
     billion less in real GDP, and a five year delay would mean 
     $171 billion less in real GDP over the next ten years.
       III. The long-distance market is currently not competitive

       Contrary to industry arguments, there is no real 
     competition in the long distance industry today. The long 
     distance companies have not lowered their rates, despite 
     steep declines in local access charges, the most significant 
     cost of providing service. In fact, the big three long 
     distance companies have raised rates in an oligopolistic 
     fashion six times in the past three years (see chart 1). In a 
     truly competitive industry prices do not go up when costs go 
     down.
       This lack of real competition in the long distance industry 
     may be the biggest barrier to entry facing competitors in the 
     local market.
       (1) State regulators fear that opening local and short-haul 
     long distance would result in drastic losses in the access 
     charge subsidies that help pay for universal service in 
     residential and rural areas.
       (2) Full and immediate competition, which includes lifting 
     the long-distance restriction, would mitigate the losses of 
     these access charges. As a result of full competition, local 
     rates would decrease 1% per year over the next ten years.

                   IV. Regulatory reform is necessary

       The study concludes that telecommunications companies must 
     be free of pricing regulations that discourage investment in 
     new network services if the full benefits of competition are 
     to be realized. Specifically, the study finds:
       Rate-of-return regulation, designed to constrain earnings 
     under the ``natural monopolies'' of the past, only slows the 
     rate of network investment and the introduction of new 
     technologies in today's environment of competition and 
     technological convergence.
       Price regulation allows incumbent carriers to re-price 
     existing services and to introduce new services in response 
     to competition, while still holding prices below that which 
     might occur in the absence of regulation. In competitive 
     markets, competition and not artificial regulatory 
     distinctions should determine pricing.

   V. Delayed competition inhibits new services, creates ``economic 
                             welfare loss''

       A significant benefit of the Immediate Regulatory Relief 
     model is that lower rates, better service and increased 
     investment all would accelerate the affordable delivery of 
     advanced services like health care, education, telecommuting 
     and more.
       On the other hand, the study finds that delaying 
     competition in communications will also delay the deployment 
     of new, advanced services. Each delay in the deployment of 
     these new services, results in a significant cost to 
     American's economy and society as a whole--a cost quantified 
     as ``economic welfare loss.''
       The economic welfare loss of new services delayed as a 
     result of current barriers to competition amounts to more 
     than $110 billion per year of delay. This economic welfare 
     loss includes, among other items: $40 billion per year in 
     residential medical and education services; $20.4 billion per 
     year in residential advanced information services; $28.8 
     billion per year in residential and business video 
     conferencing; $10.3 billion per year in expanded residential 
     entertainment programming.
       Full competition in communications markets would result in 
     a gain of between $750 and $1,000 in consumer welfare per 
     year, per U.S. household, as a result of new services 
     deployed.

                              Methodology

       Through years of research, The WEFA Group has developed a 
     set of forecasting models that provide the framework for 
     developing consistent and accurate views of the impact of 
     various market and policy developments on specific industries 
     and the U.S. economy. In July 1993, the WEFA Group completed 
     a study titled The Economic Impact of Eliminating the Line-
     of-Business Restrictions on the Bell Companies. That study 
     showed that full competition would result in millions of new 
     jobs, significant benefits for the American economy, 
     accelerated innovation and infrastructure investment lower 
     telecommunications rates and encourage the development of 
     enhanced information services. The result would be 
     substantial consumers savings and the creation of millions of 
     new jobs.
       This study uses an updated methodology to examine the costs 
     already incurred by delaying regulatory reform and evaluate 
     the costs of further delays in deregulation.
       It takes a well-defined set of assumptions and adjustments 
     gained from research and analysis of the telecommunications 
     industry and imposes them on the WEFA models. It forecasts 
     the effects not only on the telecommunications industry but 
     on the industries that buy from and supply to the 
     telecommunications industry, and reviews how the supply and 
     demand on both sides impacts industry prices.
       Each study model assumes the eventual onset of full 
     competition, including: (1) the removal of Federal and state 
     regulatory barriers to competition; (2) the replacement of 
     ``cost plus'' rate-of-return regulation with a streamlined 
     form of price regulation for non-competitive services; and 
     (3) complete deregulation of competitive service offerings.
       The models differ in two significant respects: one, the 
     timing of full competition; and, two, the sequencing--while 
     the Immediate Regulatory Relief scenario represents 
     simultaneous entry into all markets, the three and five year 
     delay scenarios open the local market to competition before 
     the long-distance market.
     

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