[Congressional Record Volume 141, Number 54 (Thursday, March 23, 1995)]
[Extensions of Remarks]
[Pages E669-E670]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


  THE ECONOMIC BENEFITS OF FULL COMPETITION IN ALL TELECOMMUNICATIONS 
                                MARKETS

                                 ______


                          HON. DAVID E. BONIOR

                              of michigan

                    in the house of representatives

                       Wednesday, March 22, 1995

  Mr. BONIOR. Mr. Speaker, in July 1993, I submitted for our colleagues 
highlights of the first WEFA [Wharton Econometric Forecasting 
Associates] Group study on the economic benefits of full competition in 
all telecommunications markets. In that study, the WEFA Group predicted 
that more than 3 million new jobs would be created over the next 10 
years if all lines-of-business restrictions were lifted on the regional 
Bell companies.
  The biggest obstacle to fulfilling the promise of telecommunications 
to the American people is the maintenance of policies at the Federal 
and State levels of government that restrict competition in 
communications markets. Regulation has failed to keep pace with the 
changes that have occurred in the telecommunications industry and the 
laws governing the industry are seriously outdated and need to be 
reformed. As Congress takes on the task of reforming and updating the 
Nation's telecommunications laws, policymakers should be mindful of the 
results of the most recent study by the WEFA Group that evaluated the 
economic impact of removing all regulatory barriers to entry in 
communications and permitting full competition in all communications 
markets.
  Under one scenario, WEFA estimated the effects of immediate and 
simultaneous removal of all restrictions on competition in 
telecommunications, long distance, information services, and equipment 
manufacturing markets as well as the replacement of rate-of-return 
regulation with price regulation in all Federal and State 
jurisdictions. The predicted response by the economy, as determined by 
the WEFA Group--perhaps the Nation's preeminent economic forecasting 
group--gives overwhelming evidence and support that such change in 
policy is needed in the national interest. Under this scenario the 
economy would stand to gain an additional 3.4 million jobs over the 
next decade compared to the baseline forecast. In my home State of 
Michigan, immediate regulatory relief for all telecommunications 
companies would create more than 35,000 new jobs throughout the entire 
State's economy by 1998 and nearly 71,500 jobs by the turn of the 
century. Because telecommunications is so important to the functioning 
of the economy, the additional jobs created by the change of policy 
would be spread across all States and all major industry groups. Job 
gains would be realized as lower prices, service enhancements, and 
technology innovations all serve to boost economic activity. The surge 
in job growth would, in effect, discount the unemployment rate at the 
end of the 10-year period by 0.4 percent of a percentage point compared 
to the baseline forecast. At the conclusion of my remarks, I will 
include a statement by Morton Bahr, president of the Communications 
Workers of America, commending the WEFA Group study and stating that 
``we applaud any legislation that will bring jobs to communications 
workers and 
[[Page E670]] benefits to American consumers as quickly as possible.''
  Other significant improvements to economic growth obtain to the 
economy in this scenario in addition to the employment gains. Real 
Gross Domestic Product [GDP] is $298
 billion higher growing 0.5 percent faster on average over the 10-year 
period and the change in policy assumed in the scenario generates more 
than $900 billion more real disposable income. The balance of trade 
improves $14 billion due to lower domestic inflation and strengthened 
U.S. global competitiveness. The Federal budget deficit improves by 
more than $140 billion over the next decades as higher incomes boost 
tax revenues. Other indicators of economywide growth show dramatic 
increases in automobile sales and housing starts and curbing or 
downward pressure on consumer price inflation and long-term interest 
rates.

  Consumers benefit tremendously under the WEFA Group study scenario of 
full, immediate, and simultaneous competition in all communications 
markets. With this change in policy, over the 10-year period, consumers 
reap nearly $550 billion in savings from the increased competition and 
the lower prices it generates compared to the baseline scenario and the 
continuation of the status quo in telecommunications policy. The $550 
billion in consumer savings is spread across all communications 
markets. More competition in the long-distance market produces $333 
billion in consumer savings from lower rates. More competition in the 
cellular market yields $107 billion in consumer savings from lower 
rates. More competition in the local exchange market for telephone 
service picks up another $32 billion in consumer savings from lower 
rates.
  WEFA Group compared the full, immediate, and simultaneous competition 
scenario with two other scenarios that would have delayed the 
introduction of full competition in all communications markets for 3- 
and 5-year periods, respectively. The cost of delay and staggered 
competition to the economy and to consumers, as estimated by the WEFA 
Group, are
 quite significant. Furthermore, this realization underscores the 
importance of Congress acting now to change and reform the Nation's 
telecommunications laws but in so doing avoid the delay of full 
competition. For example, the 3- and 5-year delay scenarios create 1.5 
million and 1.9 million fewer jobs, respectively, than are created in 
the full, immediate, and simultaneous competition scenario over the 
same time period. WEFA also found that every year of delay in the 
introduction of full competition in communications markets costs 
consumers $55 billion in lost savings in telecommunications services 
and $40 billion in lost savings on long-distance rates.

  The WEFA Group study findings are in keeping with earlier studies 
undertaken in this area, for example the study during the last Congress 
by the President's Council of Economic Advisors, which confirm large 
gains to consumer welfare and economic growth from the unleashing of 
restrained competition in telecommunications markets. Those of us in 
the Congress who are about to take up telecommunications reform 
legislation should be guided and instructed by the essential findings 
of the recent WEFA Group study, that is, the Nation's economy and 
consumers would fare best with a change in policy that produced 
competition now in all communications markets. Continuation of the 
current telecommunications policy or a change of policy that produced 
more regulatory barriers, delay, and uncertainty would not be in the 
best interest of consumer welfare and economic growth. There are some 
interests who are pushing Congress to, in fact, stagger, delay, or 
sequence competition in various telecommunications markets. However, if 
you listen very carefully to the proponents of this argument, you will 
note that the markets they serve today would be the last to face the 
new competition, if ever, under their proposal. We need to enact 
legislation that gives all players a fair and equal opportunity to 
compete in any market they choose to enter and, therefore, need to 
eliminate these lines-of-business restrictions on the Bell companies as 
soon as possible.
  Finally, Mr. Speaker, I include remarks from several Wall Street 
analysts who dispute the notion that there is real price competition in 
the long-distance telephone marketplace--a key finding of the WEFA 
study.
Statement of Morton Bahr, President, Communications Workers of America, 
         on the WEFA Group Study on Communications Competition

       Washington, DC.--The recently released study on 
     communications competition by the WEFA Group confirms what we 
     in CWA have known for years--that delaying full competition 
     in the communications marketplace is costing America hundreds 
     of thousands of jobs every year.
       Congress tried to pass legislation last year that would 
     have deregulated markets and created jobs. The opportunity is 
     at hand again and it's time we get it right, because every 
     year we delay is another year of lost jobs and lost consumer 
     benefits.
       CWA recognizes that competition will ultimately mean a boom 
     in new services and new industries, and an explosion in jobs 
     in every state and every industry in the country. That's why 
     we support the deregulation of America's telecommunications 
     markets as soon as possible.
       America shouldn't have to wait for Information Age benefits 
     when communications workers are ready to build the 
     infrastructure now. We applaud any legislation that will 
     bring jobs to communications workers and benefits to American 
     consumers as quickly as possible. Full competition will do 
     that, delayed completion won't.
                                                                    ____

 The View From Wall Street: Competition in the Long Distance Telephone 
                                 Market

       AT&T and its rivals are pushing some prices up after almost 
     10 years of steady discounting. This gives AT&T more room to 
     grow profits, and it creates an umbrella over MCI and Sprint, 
     allowing them to raise prices, too.--Kenneth Leon, Bear 
     Stearns, 10/20/92.
       AT&T, MCI, and Sprint all have high-quality earnings 
     because they operate in a stable, oligopolistic industry * * 
     * without serious price competition. [T]he only real threat 
     [is] posed by the Regional phone companies which are unlikely 
     to gain regulatory freedom to enter this business for at 
     least 3-5 years.--Philip A. Managieri, Cowen, 8/23/93.
       Margins improved for all four [long distance] carriers, 
     reflecting an impact from price increases and steady declines 
     in access costs.--Daniel P. Reingold and Richard C. Toole, 
     Merrill Lynch, 2/10/94.
       The combination of a cozy oligopoly that wishes to avoid 
     price wars and falling operating expenses primarily due to 
     [exchange] access cost reductions is an unbeatable 
     environment in which to do business.--Timothy N. Weller and 
     Nick Frelinghuysen, Donaldson, Lufkin & Jenrette, 6/1/94.
       The long distance industry is one of today's premier growth 
     industries. Where else can you find: (1) double-digit unit 
     volume growth, (2) declining unit costs, on a nominal as well 
     as real basis, (3) a $10 billion barrier to entry, (4) a 
     benign, stable oligopoly where the price leader [AT&T] is 
     looking to generate cash to fund other ventures, and (5) a 
     prohibition on competition * * * It is rare to see a full-
     fledged price war in an oligopolistic market, witness soft 
     drinks. The same holds true in the long distance market.--
     G.W. Woodlief and E. Strumingher, Dean Witter, 10/28/94.
       Many investors still seem to believe that there has been 
     some sort of ``price war'' among the major interexchange 
     carriers. The fact is that although interstate telephone 
     rates have come down by about 50% over the past decade, the 
     entire decline has been ``funded'' by decreases in the 
     amounts paid by interexchange carriers to the local exchange 
     carriers for ``access.''--John Bain, Raymond James & Assoc., 
     1/12/95.
       Overall, MCI's new Friends & Family program looks like just 
     another round of discounting funded by previously announced 
     increases in the base rates. By focusing on the discount 
     instead of the rate, the industry has been able to quietly 
     raise base rates while spending millions of dollars promoting 
     ever-increasing discounts.--D. Reingold and M. Kastan, 
     Merrill Lynch, 1/20/95.
       Regardless of your carrier, you are paying higher and 
     higher rates if you are among the tens of millions of 
     Americans who have not signed up for a discount calling plan. 
     The person paying the retail rate is bearing the 
     disproportionate burden. And these are probably the people 
     who can't afford to make a lot of phone calls and therefore 
     [do not] qualify for those cheaper plans.--D. Briere, Tele-
     Choice Inc., 1/21/95.
       AT&T now has the same revenues as the entire Bell system 
     just before the break up in 1984, when they spun off about 85 
     percent of their assets.--John Bain, Raymond James & Assoc., 
     1/24/95.
       MCI . . . filed for a 3.9% across-the-board rate increase. 
     We fully expect AT&T, Sprint, and the second tier carriers to 
     follow suit. This move by MCI is extremely bullish for the 
     long distance stocks since it sends a clear message to the 
     investment community that the long distance industry will 
     practice `safe pricing' which will lead to stable revenue per 
     minute trends.--Jack B. Grubman, Salomon Brothers, 2/6/95.
     

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