• Selected
• Entire List

Abstract:
Financial event studies using daily stock returns are frequently employed in the analysis of mergers to estimate the sign and magnitude of stock movements to particular merger announcements. A common method of conducting the event study is least squares regression with dummy variables. Daily stock returns, however, are typically non-normally distributed, potentially rendering the hypothesis tests on the least squares coefficients invalid if based on asymptotic critical values. We present evidence on the non-normality of daily stock returns and the consequences of it on critical values using a bootstrap technique. We find that non-normality can lead to substantial departures from the asymptotic critical values and large asymmetries. Both under- and over-rejection of the null hypothesis are possible depending on the particular form of the non-normality.

Event Study, Normal Distribution, Hypothesis Testing, Bootstrap, Generalized Bootstrap

Abstract:
One of the most heated debates in the current efforts to re-write the Communications Act has been whether the federal government should impose "Network Neutrality" requirements on broadband service providers. While we argue neither for nor against the need for Network Neutrality legislation in this article, our analysis shows that policymakers should avoid Network Neutrality mandates that have the intent or effect of "commoditizing" broadband access services since such a policy approach is likely to deter facilities-based competition, reduce the expansion and deployment of advanced communications networks, and increase prices. Given the economic characteristics of local communications networks, policies that promote commoditization of broadband access could lead to the monopoly provision of advanced broadband services in many markets. This outcome would harm consumers substantially.

Network Neutrality, Industry Structure, John Sutton, commoditization

Abstract:
One of the most heated debates in the current efforts to re-write the Communications Act has been whether the federal government should impose "Network Neutrality" requirements on broadband service providers. While we argue neither for nor against the need for Network Neutrality legislation in this POLICY PAPER, our analysis shows that policymakers should avoid Network Neutrality mandates that have the intent or effect of "commoditizing" broadband access services since such a policy approach is likely to deter facilities-based competition, reduce the expansion and deployment of advanced communications networks, and increase prices. Given the economic characteristics of local communications networks, policies that promote commoditization of broadband access could lead to the monopoly provision of advanced broadband services in many markets. This outcome would harm consumers substantially.

Network Neutrality, Commoditization, Entry, Broadband

Abstract:
Using a time series of fifty years, the relationships between investment by telecommunications firms and Gross Domestic Product in the United States are examined. Granger-Sims causality tests are conducted, with proper allowance for both the non-stationarity of the data and lag length. These tests indicate that investment by telecommunications firms is caused by, but does not cause, economic activity, and the findings are robust across lag lengths. The evidence suggests that policies aimed at stimulating the U.S. economy by accelerating investment in the telecommunications sector may not be successful.

telecommunications, investment, causality, granger, 1996 Telecommunications Act, unbundling, economic growth, recession, policy

Abstract:
In the last few years, U.S. telecoms policy has shifted from encouraging the sharing of existing networks to facilitating the deployment of advanced communications networks. Given the large capital expenditures required for these networks, there can be only a few of such networks. In light of the natural forces that limit the number of facilities-based suppliers, it is vital for policymakers to investigate and implement rules that make markets more conducive to facilities-based entry, and eliminate any existing rules that discourage deployment. The purpose of this article is to provide a simple conceptual framework that can be used to evaluate the effect of particular rules and regulation on the construction of advanced communications networks and the expansion of existing networks into new markets. We provide numerical examples and a number of applications to illustrate how the conceptual framework can be used to evaluate particular rules and regulations as to their effect on facilities-based entry. Applications include an analysis of convergence, regulated limitations on service offerings, the pernicious effects of cable franchising, and the potential for collusion.

Industry structure, market equilibrium, John Sutton, convergence, facilities-based competition

Abstract:
In the last few years, U.S. telecoms policy has shifted from encouraging the sharing of existing networks to facilitating the deployment of advanced communications networks. Given the large capital expenditures required for these networks, there can be only a few of such networks. In light of the natural forces that limit the number of facilities-based suppliers, it is vital for policymakers to investigate and implement rules that make markets more conducive to facilities-based entry, and eliminate any existing rules that discourage deployment. The purpose of this Policy Paper is to provide a simple conceptual framework that can be used to evaluate the effect of particular rules and regulation on the construction of advanced communications networks and the expansion of existing networks into new markets. We provide numerical examples and a number of applications to illustrate how the conceptual framework can be used to evaluate particular rules and regulations as to their effect on facilities-based entry. Applications include an analysis of convergence, regulated limitations on service offerings, the pernicious effects of cable franchising, and the potential for collusion.

Entry, Market Concentration, facilities-based competition, inter-modal competition

Abstract:
When the facilities of an incumbent monopolist are made available to potential competitors through some type if "essential facilities" or related claim, a common concern is that the ability to "buy" inputs substantially attenuates the incentive to "make" inputs. In this paper, we evaluated both theoretically and empirically the relationship between "make" and "buy." In our particular construct, three sometimes-conflicting effects are relevant to the "make-or-buy" decision, of which the substitution effect is only one. Our empirical example considers the deployment of switching facilities by entrants to local exchange telecommunications markets, and these empirics indicate that the substitution effect is not dominant. While particular to telecommunications, our findings do support the general notion that the substitution effect is not the only relevant consideration, either theoretical or empirical, for policy makers in selecting what inputs to make available to entrants when promoting competition in the utility industries.

Abstract:
Fifty years ago, U.S. Supreme Court Justice Felix Frankfurter warned the Federal Communications Commission not to view competition in an abstract, sterile way. To illustrate the dangers of using such an abstract approach to the key issue of ILEC market power, this paper uses the Commission's 1999 decision to de-regulate the prices for Special Access telecommunications services as a case study, wherein the Commission abandoned its own general framework for competition analysis in favor of using abstract notions of potential competition.

As demonstrated herein, the Commission's deregulatory scheme for Special Access has produced substantial and sustained price increases for Special Access services where pricing flexibility is granted. Based on the results of an econometric model, these price increases are found to be the consequence of ILEC market power rather than price adjustments reflecting costs. The empirical model suggests that Special Access service is priced at about three times incremental cost, and this results is in line with other recent studies of market power in Special Access markets (e.g., Rappoport, Taylor et al., 2003), which find that the Bells receive a 40 percent return on Special Access revenues of $13.3 billion.

This evidence suggests that while admittedly imperfect prognostications about competition and market power may be acceptable ex ante, continued agency review of incumbent market power is not only warranted, but virtually mandatory. Further, when abstract measures of competition are found, ex post, to be inadequate checks on market power such as in the case of Special Access services, the continued use of such abstractions by regulatory agencies should be immediately reviewed and potentially eliminated, particularly where such failure has a significant adverse impact on consumer welfare and a deleterious effect on U.S. telecoms competition and, by extension, the economy overall.

The Commission's abstract approach to encouraging new entry and mitigating incumbent market power in the Special Access context should be a canary in the coal mine as to the consequences of using abstract notions of competition in the major rulemakings now pending before the Commission to facilitate Chairman Michael Powell's vision of a digital migration via so-called inter-modal competition. Indeed, as the D.C. Circuit recognized over twenty years ago: Complex regulation must still be credible regulation and any failure by the FCC to meaningfully enforce the Communications Act deprives regulated entities, their competitors [and] the public of rights and economic opportunities without the due process the Constitution requires. Viewing competition in an abstract way failed miserably for Special Access services and this fact cannot be ignored in future proceedings at the FCC.

U.S. consumers deserve far more than a perfunctory Ron Popiel Chicken Rotisserie Oven - set it and forget it approach to the very real problem of ILEC market power, lest the negative effects of Special Access deregulation be replicated in other markets. While no doubt reducing its work load, the FCC simply cannot assume-away ILEC market power and, as Chairman Powell has recently attempted to do, eliminate it from the public lexicon altogether. Instead, responsible public policy requires the Commission to return the core unresolved issue of incumbent market power to center-stage and address it in an intellectually honest and definitive manner. As such, it is incumbent upon the FCC to fulfill their core function under the Communications Act - i.e., prevent dominant firms under their jurisdiction from gouging consumers and stymieing competition via the unfettered abuse of their market power.

Equally as important, if the evidence suggests a regulatory failure to mitigate the incumbents' market power that produces clear adverse effects on U.S. consumer welfare and the economy, then we come back full circle regarding the FCC's overall analytical approach of how we should move from one to many - i.e., given the obvious fact that the ILEC's can and will seek to exercise their market power to deny, delay and degrade new entry, then a more thorough look at the incumbents' market power by the Commission in the first instance is in order as the FCC attempts to facilitate Chairman Powell's vision of a Digital Migration.

Special access, telecommunications, market power, de-regulation

Abstract:
This POLICY PAPER examines whether there is a relationship between regulated rates for "unbundled local loops" and deployment of broadband technology by incumbents and entrants. Using an econometric model that analyzes 2002 and 2003 local loop rates and takes into account price variability and other factors that may impact broadband deployment, this POLICY PAPER finds that unbundled loop prices based on Total Element Long Run Incremental Cost ("TELRIC") are associated with increased availability of broadband services and increased availability of competitive broadband services (four or more providers). As a result, this POLICY PAPER concludes that current policies which are hostile to the market-opening provisions of the 1996 Act will actually make it harder to achieve President Bush's stated goal of "universal, affordable access for broadband technology by 2007" and will, instead, lead to greater economic concentration and incumbent market power in the industry as firms are forced to exit the market.

Telecommunications, Competition, Unbundling, Entry, 1996 Act, Broadband deployment

Abstract:
Over the past few months there have been calls to impose "wireless net neutrality" rules on the burgeoning United States wireless industry. These critics assert that certain practices by the wireless industry - such as handset "locking" practices, data bandwidth limitations, and control over features included on handsets - unduly hamper the ability of consumers to access and use advanced data communications services and, therefore, require severe regulatory intervention to protect consumers. To correct this perceived market defect, wireless network neutrality advocates essentially seek to turn highly sophisticated wireless telecommunications networks into commodity-based networks. In support of this proposal, wireless network neutrality advocates point to the Federal Communications Commission's 1968 Carterfone decision and the more recent Cable Navigation Devices rules as examples in which the Commission has taken what they allege to be a similar regulatory approach for both the landline telephone and video programming distribution market. In this Bulletin we show that neither the mandates of, nor conditions relevant to, Carterfone and the Cable Navigation Devices decisions appear to support the regulatory intervention sought by the wireless network neutrality advocates. Indeed, the Carterfone and Cable Navigation Devices decisions appear to decidedly call for a rejection of the recent proposals for wireless network neutrality. We also discuss the substantial risks that Carterfone-type regulation would commoditize wireless network services in a way that could substantially harm the prospects for entry and competition in the industry.

Network Neutrality, Carterfone, Tim Wu, Wireless Network Neutrality

Abstract:
The Telecommunications Act of 1996 (the "1996 Act"), by stressing the reduction or elimination of entry barriers that prevent the fragmentation of market structure and an increase in the number of competitors, established competition and deregulation as the foundation for public policy towards the telecommunications and commercial broadcasting industries. By lowering barriers to entry, telecommunications markets should be expected to grow as new firms expand industry capacity and broaden the scope of consumer choice. Presumably, market concentration will decline as entry continues, eventually producing sufficient fragmentation that competitive rivalry will obviate the continuing need for regulation. Suppose, however, that the ongoing process of competitive entry becomes truncated and market concentration fails to continue falling even if market size continues to grow so that concentration appears to reach a lower bound. There is some evidence suggesting that such a lower bound may, in fact, exist in local telecommunications markets, notwithstanding the statutory provisions of the 1996 Act reducing barriers to entry. This Policy Paper draws from the analyses of competition developed over the last decade or so that offers new insights about the market size-market concentration relationship. The Policy Paper proposes that this new economic thinking is directly applicable to understanding the evolution of entry and competition in telecommunications markets and the growing concentration in commercial broadcasting markets following adoption of the 1996 Act. Moreover, this new economic thinking, unlike the more standard analyses of market structure and competition, provides guidance for public policy towards both telecommunications and broadcast markets.

Telecommunications, Competition, Market Structure

Abstract:
This Paper discusses important economic characteristics of local exchange markets and the firms that participate therein. First, this Paper explains that entry into the local exchange market requires large fixed and sunk costs, making entry risky and necessitating scale economies. Consequently, only a few local access networks can supply the market. These few local access networks cannot be small, however, because a large market share is required to realize sufficient scale economies to effectively compete with the Incumbent Local Exchange Carrier or "ILEC" and survive.

Secondly, using publicly available data from the Federal Communications Commission and industry filings with the Security and Exchange Commission, this Paper explains that acquiring sufficient market share in network services to realize scale economies may be difficult for entrants who either attempt to purchase unbundled network elements from the incumbent or attempt to build their own network from the ground up. Instead, given the substantial scale economies required in the local exchange network, it may not be possible for a single carrier to acquire sufficient retail market share in a timely manner to exhaust economies of scale in its wholesale network. An integrated firm supplying the wholesale market, in an effort to expand output, is conflicted; the integrated firm's retail market share raises the opportunity cost of wholesale supply.

Accordingly, this Paper shows that if economies of scale are sufficiently large, reaching a scale of operation that allows the entrant to compete with the ILEC may be best achieved through the entry of an Alternative Distribution Company or "ADCo", which is a wholesale-only "carriers'-carrier" for the proverbial "last mile." (This is a very different concept from a "LoopCo," which is formed via the structural separation of the ILEC's network facilities and marketing operations.) The ADCo can consolidate the consumer demand held by retail CLECs, thereby reducing risk and costs by expanding output quickly. The disincentives to wholesale supply possessed by the integrated firm, furthermore, do not exist for the ADCo, and therefore the ADCo - unlike the ILEC - has no incentive to sabotage its customers (i.e., the ability to increase or raise the cost of a rival's key input of production by non-price behavior.) As a result, while the number of local access networks the market can sustain may be few, the exclusively wholesale nature of the ADCo nonetheless permits the number of providers of advanced telecoms products and services to be many (the raison d'etre of market "restructuring").

Equally as important, given the existence of these discriminatory incentives resulting from the current and foreseeable economic conditions of the U.S. telecommunications industry, the most probable and viable long term, competitive market structure involves a substantial presence by an unintegrated, but larger wholesale supplier - in other words, an ADCo - to function efficiently. As such, their presence in the market should be welcomed and encouraged.

Telecommunications, Competition, Unbundling, 1996 Act

Abstract:
This Policy Paper discusses important economic characteristics of local exchange markets and the firms that participate therein. First, this Policy Paper, building on the work in PHOENIX CENTER POLICY PAPER NO. 10, explains that entry into the local exchange market requires large fixed and sunk costs, making entry risky and necessitating scale economies. Consequently, only a few local access networks can supply the market. These few local access networks cannot be small, however, because a large market share is required to realize sufficient scale economies to effectively compete with the Incumbent Local Exchange Carrier or "ILEC" and survive.

Secondly, using publicly available data from the Federal Communications Commission and industry filings with the Security and Exchange Commission, this Policy Paper explains that acquiring sufficient market share in network services to realize scale economies may be difficult for entrants who either attempt to purchase unbundled network elements from the incumbent or attempt to build their own network from the ground up. Instead, given the substantial scale economies required in the local exchange network, it may not be possible for a single carrier to acquire sufficient retail market share in a timely manner to exhaust economies of scale in its wholesale network. An integrated firm supplying the wholesale market, in an effort to expand output, is conflicted; the integrated firm's retail market share raises the opportunity cost of wholesale supply.

Accordingly, this Policy Paper shows that if economies of scale are sufficiently large, reaching a scale of operation that allows the entrant to compete with the ILEC may be best achieved through the entry of an Alternative Distribution Company or "ADCo", which is a wholesale-only "carriers'-carrier" for the proverbial "last mile." (This is a very different concept from a "LoopCo," which is formed via the structural separation of the ILEC's network facilities and marketing operations.) The ADCo can consolidate the consumer demand held by retail CLECs, thereby reducing risk and costs by expanding output quickly. The disincentives to wholesale supply possessed by the integrated firm, furthermore, do not exist for the ADCo, and therefore the ADCo - unlike the ILEC - has no incentive to sabotage its customers (i.e., the ability to increase or raise the cost of a rival's key input of production by non-price behavior.) As a result, while the number of local access networks the market can sustain may be few, the exclusively wholesale nature of the ADCo nonetheless permits the number of providers of advanced telecoms products and services to be many (the raison d'etre of market "restructuring").

Equally as important, given the existence of these discriminatory incentives resulting from the current and foreseeable economic conditions of the U.S. telecommunications industry, the most probable and viable long term, competitive market structure involves a substantial presence by an unintegrated, but larger wholesale supplier - in other words, an ADCo - to function efficiently. As such, their presence in the market should be welcomed and encouraged.

Telecommunications, Competition, Unbundling, 1996 Act

Abstract:
The United States Department of Commerce, Technology Administration provided support to the Phoenix Center to study the causes and potential solutions of the Valley of Death for technology development in the United States under Study Contract No. SB1341-05-2-0023 administered by KT Consulting, Inc. While several explanations for this Valley of Death have been proffered, this Paper takes a decidedly different approach to this issue. We focus our attention on the notion that the Valley of Death is, in fact, a valley in the innovation process - an image that implies that funding for R&D projects is more readily available for basic or early-stage research (a peak) than the intermediate stages (the valley). Our economic model indicates that such a nonlinear phenomenon can only occur if noneconomic investments (such as government expenditures on basic research) are made in very early stage research without sufficient attention to the likely investment decisions at later stages of the innovation process. This is not meant to imply that government support of R&D activity is unwarranted; in fact, there are important and valid reasons for government to support R&D activity. In some respects, the Valley of Death may be an inevitable consequence of socially-valuable government intervention. An important question is whether technology policymakers should devote some attention and resources to the study of the optimal mix of government support for early-stage and intermediate-stage R&D projects. In particular, it may be possible to increase economic welfare from government R&D efforts by increasing support for intermediate stage projects or by altering the allocation of a fixed level of support between early and intermediate stages of the innovation process. Even if the current mix of funding across the stages of the innovation process is deemed optimal, it is also sensible to evaluate ways to increase technology innovation by assisting private investors in seeing projects through intermediate stages of the innovation sequence, which will bring innovations closer to commercialization and diffusion.

Valley of Death, Innovation, Innovation Sequence, Basic Research, Funding Gap

Abstract:
In this Policy Bulletin, we evaluate Network Neutrality proposals from the standpoint of consumer welfare and economic efficiency by presenting a cost/benefit analysis framework for examining the effect on consumers of Network Neutrality proposals that would limit operators from injecting intelligence into broadband Internet access networks. For a Network Neutrality proposal to be justified, the purported benefits of that proposal must exceed the costs, including the inefficiency in network design as well as the risk of increased industry concentration and market power. Publicly available cost studies show that if IP video services increase in popularity, the cost of providing a residential subscriber a "stupid" network that is video-capable could reach $300 to $400 per month more than an "intelligent" network, which would certainly put broadband out of the reach of many Americans. We also present a simple model which shows that voluntary investments in network efficiency always improve consumer and social welfare - even if, as some Network Neutrality proponents contend, stupid networks are otherwise preferred by consumers.

Network Neutrality, stupid network

Abstract:
This paper surveys the impairment standard of Section 251(d)(2)(B) of the Telecommunications Act of 1996 and its content as it has been interpreted by both the FCC and the Courts. The Congressional standard relating to unbundling clearly pointed to its impact on each CLEC's output, and relevant Court decisions have repeatedly upheld this view. We develop a formal theoretical model of impairment that relates element Availability to CLEC output. This theoretical model is then subjected to empirical tests.

1996 Telecommunications Act, unbundling, FCC, Federal Communications Commission, telecommunications, communications, regulation, impairment, policy, UNE-P, UNE Platform, UNE-L, UNE-Loop, UNE Loop, UNE-Platform, Ford, Ekelund, Beard, competition, entry

Abstract:
An Eviews program is provided that computes outlier statistics in Eviews. A dataset is provided to confirm the output, which is compared to the output of the same statistics in STATA.

Outliers Eviews Econometrics Software

Abstract:
The purpose of this Policy Paper is to examine empirically the relative impact that a regulatory mandate like network neutrality would have on high-cost areas and to compare that relative burden to lower-cost urban areas. We find areas that are, on average, high-cost could be disproportionately affected by imposition of these mandates, even if the cost of complying with that mandate does not vary by geography. Using publicly available network cost models and data, we show that under plausible conditions, while network neutrality mandates negatively impact broadband deployment in all geographic areas regardless of average cost characteristics, such rules could disproportionately impact broadband deployment in high-cost areas. Moreover, our analysis that suggests the differential reduction in service availability for high-cost rural areas is six times as much as in lower cost, more urbanized markets.

Network Neutrality, stupid network, rural broadband

Abstract:
This month, three professors at the University of Florida's Warrington College of Business Administration released a new paper on the effects of network neutrality regulation using a stylized game-theoretic model (the "Florida Study"). This analytical investigation of network neutrality is certainly a welcome addition to the debate, which has primarily been driven by emotion. But the conclusions of the Florida Study have been grossly misconstrued by network neutrality proponents, who have seized upon them in claiming that the study shows that the "Internet with Net Neutrality is unequivocally better for consumers." Even a casual read of the Florida Study shows that those claims are entirely false. In fact, the Florida Study clearly shows that under no circumstances will consumer welfare be improved by network neutrality regulation. In fact, the Florida Study suggests that the only "winners" from network neutrality regulation will be the Internet content providers - with broadband service providers and consumers being worse off (or, in some cases, unaffected). Policymakers should therefore not be misled as to what the Florida Study actually says and should pay heed to the warnings that lie beneath the patina of overzealous advocacy.

Network Neutrality, University of Florida, Cheng

Abstract:
In support of Fomby and Murfin (2005), we demonstrate empirically, rather than theoretically, the severe consequences of using HAC standard errors in regression-based financial event studies. Applying an event study to a recent merger, we show that the use of HAC standard errors render misleading conclusions. Critical values for t-tests on the event dummy variables are about 15 times larger than the nominal values using only a year of daily return data. Even with samples of only 100 returns, critical values exceed nominal critical values by a factor of 10.

Event Study, HAC, Heteroscedasticity Robust Standard Errors

Abstract:
This POLICY PAPER presents an economic model showing how incumbent local exchange carriers may deter efficient facilities-based entry for high capacity loop facilities through the use of quantity-discount contracts for Special Access services. Since efficient entry is deterred, these contracts are socially inefficient. The theoretical model also shows that the entry-deterring effects of the contracts are eliminated if high-capacity circuits are made available at prices based on economic costs (e.g., TELRIC) and made available without use restrictions historically applied to such access. To foster efficient facilities-based entry, federal policies must address the entry-deterring components of Special Access contracts and make high-capacity facilities available on an unbundled basis at cost-based prices.

Special Access, Telecommunications, Market Power, De-Regulation

Abstract:
In this paper, the determinants of the provision of facilities-based lines by competitive local exchange carriers ("CLECs") are examined using data collected by the Federal Communications Commission and the entry decisions of a large, facilities-based CLEC. The multiple regression models are based on the economics of entry, considering both the effects of market size and sunk costs on provision of facilities-based service to end-users by CLECs. These estimated regressions indicate that CLEC facilities-based entry is positively related to market size and inversely related to the sunk costs of entry. Both regressions indicate that unbundled element prices are inversely related to facilities-based entry. On average and other things constant, higher element rates are associated with a reduced amount of facilities-based entry by CLECs.

telecommunications, competition, communications, empirical, econometrics, 1996 Telecommunications Act, Telecommunications Act, substitution, impairment, entry, loop, switching, TELRIC, LRIC, TSLRIC, total element long run incremental cost, FCC, Federal Communications Commission, policy, competition policy

Abstract:
In this Policy Paper, we analyze the effects of "network neutrality" proposals that seek to mandate an inflexible set of rules that would foreclose or severely limit many market transactions. Our model reveals that under plausible conditions, rules that prohibit efficient commercial transactions between content and broadband service providers could, in fact, be bad for all participants: consumers would pay higher prices, the profits of the broadband service provider would decline, and the sales of Internet content providers would also decline. Moreover, rules that prohibit the market from contracting efficiently may shift sales from content providers to the broadband provider's content affiliate, a result entirely inconsistent with the stated desire of network neutrality proponents. As the model shows, these unintended consequences of such network neutrality rules are the result of shifting costs to consumers that are more efficiently borne in the exchange between content and broadband providers. While proponents of such regulation may view it as protection from alleged anticompetitive behavior by broadband service providers, such proposals also eliminate the potential for efficient, voluntary, welfare-improving market transactions.

Network Neutrality, two-sided markets, transaction cost economics

Abstract:
An Eviews program is provided that computes the Murphy-Topel Covariance Matrix using Eviews. A dataset is provided to confirm the output, which is compared to the output of the procedure using STATA.

Murphy, Topel, Covariance Matrix, Two-stage estimators, Maddala, Simultaneous Models

Abstract:
In this paper, we present a new and policy-relevant means of comparing the broadband adoption rates among countries — the Broadband Performance Index (BPI). Unlike the OECD, which ranks countries' broadband performance using raw, per capita subscription data alone, the BPI is a policy-relevant means of comparing broadband adoption among countries because it measures whether actual broadband penetration in a country meets, exceeds, or fails to meet its expected performance. We generate the BPI for each OECD country with econometric techniques that take into account a number of factors, such as income, income inequality, education, population age, and population density. The BPI shows that among OECD countries, broadband adoption in the U.S. generally meets expectations. Interestingly, countries often cited as broadband miracles, like Korea and Japan, are average performers like U.S., and several countries ranked higher than the U.S. by the OECD (such as Denmark and Norway) are significantly underperforming. Countries like Portugal and Turkey, each of which rank behind the United States in the OECD rankings, are actually surpassing their demographic and economic endowments substantially.

Broadband Performance Index, Broadband, International Rankings, OECD

Abstract:
The purpose of patent policy is to balance the incentive to invent against the ability of the economy to utilize and incorporate new inventions and innovations. Substandard patents that upset this balance impose deadweight losses and other costs on the economy. In this Policy Paper, we examine some of the deadweight losses that result from granting substandard patents in the United States. Under plausible assumptions, we find that the economic losses resulting from the grant of substandard patents can reach $21 billion per year by deterring valid research with an additional deadweight loss from litigation and administrative costs of $4.5 billion annually. This brings the total deadweight loss created by our "dented" patent system to be at least $25.5 billion annually. These estimates may be viewed as conservative because they do not take into account other economic costs from our existing patent system, such as the consumer welfare losses from granting monopoly rents to patent holders that have not, in the end, invented a novel product, or the full social value of the innovations lost.

patents, substandard patents, loose patents

Abstract:
This Policy Paper demonstrates that policies that hinder a new entrant's ability to sell video programming, such as forcing entrants to obtain a local cable franchise agreement, will strongly diminish that entrant's incentive to deploy fiber to low-income households. Using publicly-available data from the U.S. Census Bureau, we employ a simple graphical analysis and a simulation of network deployment to show that a new entrant will pass substantially more households - and in particular low-income households - if that entrant can readily offer video with voice and broadband Internet access services than it will if its ability to sell video services is sharply curtailed or delayed. In our simulation, video service takes on the role of a silver bullet - i.e., when the network firm can bundle video, the percentage of poverty and minority homes with access to the network rises significantly. Accordingly, our analysis indicates that policies that make video competition more difficult will lead to significantly lower deployment of advanced broadband networks in low-income areas than would occur with pro-entry video policies.

franchising, digital divide, entry, fiber, build-out requirements, cable television, video

Abstract:
The Bell Operating Companies ("BOCs") argue that Total Element Long Run Incremental Cost (TELRIC) prices set by State public service commissions have no nexus to the BOCs' actual forward-looking costs but are, instead, based on retail prices with the goal of ensuring that competitors have an adequate (if not outright excessive) margin, thus resulting in "parasitic" competition. This Policy Paper, however, empirically demonstrates that the data do not support the Bells' contentions, finding that the wholesale price for combination of unbundled elements is motivated primarily by forward-looking costs and secondarily by BOC retail profit margins. Simply stated, wholesale prices for UNE-P are not directly related to retail prices for local telephone service. In fact, rather than set rates below costs, the States more often than not have actually preserved some BOC profit in a politically sensible "50/50" split between the desired outcomes of new entrants and the incumbents. The fact that BOC margins are declining is an intended consequence of Section 251(d) the 1996 Act and a rational public policy, because TELRIC pricing deliberately does not incorporate the monopoly rents the BOCs have traditionally enjoyed in the wholesale prices for UNEs.

Equally as important, a financial analysis of the BOCs' own publicly stated retail and wholesale revenues and operational costs for local phone service refutes the BOCs' claim that wholesale revenues are insufficient to cover wholesale operational costs. Quite to the contrary, the data indicate that even though EBITDA margins for wholesale lines are approximately half that of retail lines, the BOCs' wholesale margins are nonetheless positive, with EBITDA margins in percentage terms (revenues minus cost divided by revenues) for retail and wholesale services averaging 55% and 40%, respectively, and the wholesale EBITDA margin averaging about 40% of the retail EBITDA margin.

Telecommunications, Competition, Unbundling, TELRIC

Abstract:
In this paper, we estimate demand curves for unbundled loops sold by incumbent local exchange telecommunications carriers to their retail rivals. Of primary interest are the cross-price effects between unbundled loops purchased with and without unbundled switching. As expected, we find downward-sloping demand curves for unbundled elements, with own-price elasticities in the elastic region of demand. Interestingly, however, we also find no evidence of positive cross-price elasticities between alternative modes of unbundled element entry.

telecommunications, competition, policy, communications, TELRIC, UNE-Platform, UNE-P, UNE-L, UNE-Loop, unbundling, unbundled, network, elements, UNEs, UNE, FCC, Federal Communications Commission, 1996 Telecommunications Act, TELRIC, LRIC, long run incremental cost

Abstract:
Many policymakers have recently expressed concern over the practice of multichannel video programming distributors ("MVPDs") such as cable and satellite video providers, to "bundle" a large number and variety of channels together into a "take-it-or-leave-it" package. In this BULLETIN, we describe a set of circumstances in which a market defect will lead to the bundling of potentially objectionable content with generally desired content. Our model focuses on the role that advertisers and video programming vendors play in the network bundling of MVPDs. Our economic model illustrates the role these "third parties" play in an MVPD's decision to deliver particular channels of video programming to households in a "forced bundle" of desired and potentially objectionable programming that does not give consumers the option to exclude objectionable programming from the purchased bundle. Forced bundles appear in both monopoly and competitive structures because the conditions that give rise to this market defect make these "forced bundles" resistant to changes in market structure. As a result, policymakers should look at all participants in the multichannel video distribution market, not just retail distributors, as potential sources of forced bundling problem.

a la carte, cable, video, market defect

Abstract:
Many policymakers have recently expressed concern over the practice of multichannel video programming distributors ("MVPDs") such as cable and satellite video providers, to "bundle" a large number and variety of channels together into a "take-it-or-leave-it" package. In this BULLETIN, we describe a set of circumstances in which a market defect will lead to the bundling of potentially objectionable content with generally desired content. Our model focuses on the role that advertisers and video programming vendors play in the network bundling of MVPDs. Our economic model illustrates the role these "third parties" play in an MVPD's decision to deliver particular channels of video programming to households in a "forced bundle" of desired and potentially objectionable programming that does not give consumers the option to exclude objectionable programming from the purchased bundle. Forced bundles appear in both monopoly and competitive structures because the conditions that give rise to this market defect make these "forced bundles" resistant to changes in market structure. As a result, policymakers should look at all participants in the multichannel video distribution market, not just retail distributors, as potential sources of forced bundling problem.

a la carte, cable television

Abstract:
Recent reports on the financial consequences of UNE-P sales for Bell Operating Companies have drawn additional attention to long-standing complaints by the BOCs that such sales are confiscatory, and amount to "subsidized competition." This paper subjects the conclusions of these claims and the financial studies upon which they are based to careful scrutiny, and finds that they are largely without merit. Errors in both the alculation of unbundled element revenues, and in the wholesale costs of providing unbundled elements, are identified. Using actual payments by a representative CLEC and publicly available ARMIS expense data, we obtain realistic revenue and current cost figures usable for financial analyses. Our analysis suggests that the wholesale business, taken alone, is profitable for the BOCs.

telecommunications, competition, policy, communications, TELRIC, UNE-Platform, UNE-P, UNE-L, UNE-Loop, unbundling, unbundled, network, elements, UNEs, UNE, FCC, Federal Communications Commission, 1996 Telecommunications Act, TELRIC, LRIC, long run incremental cost, below cost, actual cost, embedded cost

Abstract:
In this Policy Paper, we analyze the variation in broadband adoption rates among the respective United States. Significantly, we find that 91% of the variation is explained by demographic and economic conditions, such as household income, education and, most significantly, income inequality. Our research therefore indicates that policies that focus on these demand-side factors perhaps offer more "bang for the buck" in terms of increasing broadband penetration than supply-side policies, including subsidies for networks or regulation of providers. For example, programs that focus upon educational institutions in low-income communities with school age children - like ConnectKentucky's "No Child Left Offline" initiative - may boost broadband adoption rates considerably, as they leverage demand-side drivers that encourage broadband subscription (having a child in school) in a way that may overcome or mitigate the problem of income inequality. Programs that target broadband education for older and retired persons may also be helpful.

broadband deployment, demand-side drivers, income, income inequality, Gini Coefficient

Abstract:
On April 8, 2004, the Heritage Foundation released a Backgrounder entitled Are U.S. Telecom Networks Public Property? by James Gattuso and Norbert Michel. There, the authors claim that the current telephone network was paid for by the shareholders of the incumbent Bell monopolists, and not by captive ratepayers who bore the downside risks of network construction over the past century, primarily as a result of the government's use of franchised monopoly and price regulation in local telecoms (i.e., guaranteed rates of return funded by consumers).

To support this position, Gattuso and Michel utilize a financial model that relies primarily on an analysis of the amount of cash the Bell companies used to increase property, plant, and equipment (PP&E).

However, the author finds that Gattuso and Michel's financial analysis is replete with analytical errors and data problems. After correcting these errors, Gattuso and Michel's conceptual framework implies that ratepayers bore the downside risk for the construction of 96% of the current Bell Company local exchange network. Thus, the author argues that ratepayers have a sizeable claim regarding the policy outcomes of efforts to promote competition to the incumbent Bell monopolists' wireline networks.

Telecommunications, Competition, Unbundling, Entry, 1996 Act, property rights

Abstract:
The extent to which broadband Internet service providers can engage in reasonable traffic management when faced with potentially congestion-causing applications like BitTorrent or other file-sharing applications is currently the subject of heated debate. This Paper provides a formal economic analysis of the likely welfare consequences of broadband Internet network management that is directed at controlling network congestion. We show that it is socially desirable to charge a congestion premium or utilize other traffic management techniques when congestion-causing applications impose a congestion externality and degrade the experience of other users. The most efficient traffic management actions would be targeted at applications that cause congestion externalities and not upon all applications generally. The model also suggests congestion externalities caused by applications may vary depending upon network capacity constraints and protocols. As a result, assessment of the reasonableness of network management practices is most logical on a case-by-case basis rather than imposition of a single bright-line test. Instead, our model indicates that if it is shown that a congestion externality is present and that a traffic management tool directly remedies that externality, it is appropriate to presume that this type of traffic management by a private firm is legitimate and welfare enhancing.

network neutrality, congestion, externalities, reasonable network management

Abstract:
There are 2,007 municipalities across the United States that provide electricity service to their constituents. Of these, over 600 provide some sort of communications services to the community. An important policy question is whether or not public investment in communications crowds out private investment, or whether such investment encourages additional entry by creating wholesale markets and economic growth. We test these two hypotheses - the crowding out and stimulation hypothesis - using a recent dataset for the state of Florida. We find strong evidence favoring the stimulation hypothesis, since public investment in communications network increases competitive communications firm entry by a sizable amount.

Municipal Broadband, Telecommunications

Abstract:
Firms that wish to offer wireline, multichannel video programming services in direct competition with cable incumbents are being faced with calls by those incumbents and policymakers to "build-out" to entire communities as a pre-condition to receiving a franchise. This "build-out" requirement is often incorporated into the local cable franchising process. In this paper, we show that build-out mandates are actually counter-productive and serve primarily to deter new entry, increase the profits of incumbents, and harm consumers. Using both a theoretical model and an empirical simulation, we show that build-out rules cause new video entrants to bypass certain communities entirely and sharply lower the number of communities in which new network construction would be profitable. We show that consumer welfare is likely to be higher with "free entry" policies that impose no build-out requirement.

Cable Television, Build-out Rules, Entry, Franchising

Abstract:
In this brief Policy Paper, the incentives of the Bell Companies to promote "real competition" by eliminating the Unbundled Network Element Platform as an entry mode are examined. As common sense dictates, the Bell Company anti Unbundled Network Element Platform message is not driven by a desire for "real competition," but an effort to shift competitive entry toward slower, less ubiquitous entry modes such as UNE Loop and facilities-based entry. The increase and protection of profits is the goal of the Bell Company, not the altruistic promotion of consumer benefits created by the rapid introduction of competition into the local exchange market. Policymakers, at least wise policymakers, should not ignore this fact.

Telecommunications, Competition, Unbundling

Abstract:
Firms that wish to offer wireline, multichannel video programming services in direct competition with cable incumbents are being faced with calls by those incumbents and policymakers to "build-out" to entire communities as a pre-condition of receiving a franchise. This "build-out" requirement is often incorporated into the local cable franchising process, which the FCC over a decade ago called "the most important policy-relevant barrier to competitive entry in local cable markets." In this Policy Paper, we show that build-out mandates are actually counter-productive and serve primarily to deter new entry, increase the profits of incumbents, and harm consumers. With both a theoretical model and an empirical simulation, we show that build-out rules cause new video entrants to bypass certain communities entirely and sharply lower the number of communities in which new network construction would be profitable. We show that consumer welfare is likely to be higher with "free entry" policies that impose no build-out requirement.

cable franchises, build-out requirements

Abstract:
Licensed to nonprofit educational entities, the 2500-2690 MHz band of spectrum has been plagued by overly intrusive governmental policy since its inception over forty years ago. As a consequence, this spectrum is woefully underutilized. In 2004, the Federal Communications Commission recognized that private sector investment will help fulfill the educational mission of this spectrum and took several important steps to create a "secondary market" for leases of this spectrum. However, some organizations have now proposed that the Commission limit the length of those leases to 15 years. In this BULLETIN, we find that a lease term limitation may lead to reduced private sector investment in and inefficient use of this important band of spectrum.

Spectrum Policy, Educational Broadband Service

Abstract:
An Eviews program is provided that computes the BLUS residuals. A dataset is provided to confirm the output, which is compared to the output of the BLUS function in SAS.

BLUS Residuals, Eviews Econometrics Software

Abstract:
In this Policy Bulletin, we provide a focused economic analysis of the welfare effect of state and local regulation on communications services and, in particular, on the wireless segment of the telecommunications industry. We find that when local regulation in one jurisdiction has sufficiently large "extra-jurisdictional" effects in other locations, overall social welfare can be reduced even if state and local governments act as efficient regulators. This finding is important because it shows that the debate over the proper regulatory framework for the wireless industry need not be driven by an assessment of which set of regulators, federal or state, is more competent. Accordingly, because state and local regulation in the wireless industry has the tendency to spill across borders, our analysis suggests that society is likely better to be off with a single, national regulatory framework for wireless services.

wireless, Federalism, national framework, telecommunications

Abstract:
Traditional phone carriers have announced ambitious multi-billion dollar plans to bulk up their networks with fiber in order to deliver a range of new services, including multi-channel video in competition with video incumbents. This competition promises to benefit consumers through lower prices, enhanced services and expanded choices from both incumbents and new entrants. Actual market entry, however, faces a significant barrier in the form of local franchise requirements that are delaying entry and could postpone competition for a substantial period of time. For that reason, public policymakers are being urged to speed the delivery of new services to consumers by reforming the franchise process.

This POLICY PAPER seeks to assist policymakers by measuring the impact of delayed entry on consumers. Drawing on existing data that shows cable prices are about 15 percent lower in the face of wireline video competition, we find that a one-year delay in entry because of franchise requirements would cost American consumers $8.2 billion. The toll on consumers cumulates as reform is deferred so that four years of delay would cost consumers almost $30 billion in unrecoverable losses. These estimated losses may be understated, as we assume a 15 percent price decline, which is consistent with GAO analysis. A recent survey by Bank of America found substantially greater price declines, on the order of 28-42 percent, as the result of new wireline video competition from traditional telecommunications carriers.

Franchise reform, cable television, entry

Abstract:
This Perspective argues that the Federal Communications Commission's current "trigger framework" of counting the number of competitors in a market in order to determine whether or not a rival is "impaired" is a model of analytical inconsistency. Specifically, the Commission defines "impairment" in terms of entry barriers, but then ignores the very entry barriers it deems important when establishing the triggering scheme. As a consequence of this determination, the Commission argues against itself and therefore the Commission should abandon or at least substantially alter its current triggering framework if local competition is to succeed in accordance with the precepts of the Telecommunications Act of 1996.

Telecommunications, Competition, Unbundling, Entry, impairment, 1996 Act

Abstract:
In response to federal efforts to reform the local cable franchise process, state and local governments have argued that proposed legislation will reduce local franchise fee revenues by at least $300 million per year. As demonstrated in this POLICY BULLETIN, however, the introduction of competition for multichannel video services promises to significantly increase gross industry revenues and therefore could substantially increase local franchise fee collections. Specifically, this POLICY BULLETIN finds that if wireline, local telephone company entry into the multichannel video industry is successful, then gross taxable revenues from the wireline multichannel video industry will increase by an estimated 30%. Commensurately, effective proentry video policies would allow the local franchise fee percentage cap to be lowered (or the revenue base narrowed) significantly without doing any harm to local government franchise collections. This POLICY BULLETIN estimates that a reduction in the franchise fee cap from 5% to 3.7% would be revenue neutral. However, this "competition dividend" will only occur if wireline entry happens and, therefore, reform of the cumbersome and anticompetitive video franchising process is crucial to ensuring that such entry occurs.

Cable television, franchise reform, franchise fees

Abstract:
On July 20, 1999, the Federal Communications Commission released a Notice of Inquiry (NOI) seeking comment "on the impact of certain flat-rated charges on single-line residential and business customers who make few, or no, interstate long-distance calls (1)." These "flat rated charges are attributable to universal service and access charge reform (1)" that the Commission implemented in January of 1998. The purpose of this reform, as indicated by the Commission, was "to phase in an economically rational common line rate structure . . . and to reduce the support burden on high-volume long-distance and business customers (1)." Although the Commission lists its "primary focus" as being on the consequence of its own policy reforms, it also inquired about the impact on consumers of flat monthly account maintenance fees charged by some interexchange carriers (IXCs) to customers with zero or low usage.

This Policy Paper shows that if the goals of Access Reform, both specifically and generally, are to be accomplished, it is necessary that the pricing structure of access services and long distance rates consist of both fixed monthly fees and usage charges. Such cost causative, two part pricing structures are consistent with both the stated intent of the Commission's Access Order and the general economic principles of efficient pricing. The Commission's intention to eliminate the implicit subsidies created by the pre Reform access pricing structure will, by necessity, force some consumers to pay more. Specifically, previously subsidized consumers will pay more while previously subsidizing consumers will pay less. This consequence of Access Reform was expected, indeed inevitable, and is no cause for alarm. Any attempt to regulate away intended consequences is particularly undesirable.

In addition, this Policy Paper provides some evidence on the relationship between usage and income. This evidence indicates that while usage and income are positively correlated, the correlation is weak. Furthermore, low usage (the focus of the NOI) is found to be common at all income levels suggesting that the recent changes in the industry are not excessively burdensome to households of a particular income level. Thus, Access Reform would appear to be fairly innocuous on fairness grounds.

Telecommunications, access charges

Abstract:
In this paper, we attempt to shed light on an important policy question: Does the current way by which providers compensate each other for the exchange of voice over Internet Protocol (VoIP), wireless, local, and long distance calls inhibit broadband deployment? This question is timely, as the Federal Communications Commission is presently considering a comprehensive intercarrier compensation reform proposal that would establish lower and more uniform rates for the transport and termination of all forms of traffic, regardless of point-of-origin and technology. Supporters of the proposal have argued that broadband deployment would be advanced if the FCC were to adopt this proposal, while detractors assert that broadband deployment would be demonstrably hurt. In this paper, we find evidence that compared to the current Byzantine intercarrier compensation system, a lower, more uniform compensation rate can promote and spur broadband deployment, especially in rural and less densely populated areas where current call termination rates are very high, by reducing arbitrage opportunities that distort investment decisions. As such, comprehensive intercarrier compensation reform would appear to make a significant contribution towards the development of a true national broadband strategy.

broadband, intercarrier compensation, national broadband strategy, universal service

Abstract:
In this article, we provide a focused economic analysis of the welfare effect of state and local regulation on communications services and, in particular, on the wireless segment of the telecommunications industry. We find that when local regulation in one jurisdiction has sufficiently large "extra-jurisdictional" effects in other locations, overall social welfare can be reduced even if state and local governments act as efficient regulators. This finding is important because it shows that the debate over the proper regulatory framework for the wireless industry need not be driven by an assessment of which set of regulators, federal or state, is more competent. Accordingly, because state and local regulation in the wireless industry has the tendency to spill across borders, our analysis suggests that society is likely better to be off with a single, national regulatory framework for wireless services.

wireless, federalism, national wireless framework

Abstract:
One of the most contentious debates in modern telecommunications policy regards whether or not a regulatory mandated reductions in the per-minute costs of long distance carriers - access charges domestically and settlement rates internationally - are fully reflected in the per-minute prices for long distance calls. In this paper, we evaluate the flow through of settlement costs to international long distance prices and find strong evidence that IMTS prices are closely related to settlement costs, and that these prices fully reflect differences in settlement costs. Further, the estimated relationship between prices and settlement cost indicates, under certain assumptions, that the IMTS industry is very competitive.

IMTS, Settlement Rates, Interational Telecommunications

Abstract:
In this Paper, we assess the performance and efficiency of OECD countries with respect to broadband Internet subscription. Using the econometric technique of Stochastic Frontier Analysis, we estimate scores indicating the efficiency with which a country converts its economic and demographic endowments into broadband subscriptions. With very few exceptions, we find that broadband subscription in OECD countries is consistent with those endowments -- about two thirds of OECD countries have an efficiency rate of 95% or better. Significantly, the United States has an efficiency index of 96.7%, which is slightly higher than Japan (96.3%) and Korea (95.8%). Consistent with earlier research, we find that economic and demographic endowments explain nearly all of the variation in broadband subscriptions (91%). This finding suggests that public policy's role for broadband adoption may be more effective if it is targeted at improving or mitigating the adverse effects of those underlying demographic and economic conditions, such as computer ownership and education programs. Finally, because countries have different demographic and economic conditions, the most effective mix of policies will vary from country-to-country. As such, our findings indicate that blindly following the policies of countries "ranked" higher in the OECD raw rankings is not likely to result in optimal success.

Broadband Efficiency Index, OECD, broadband rankings, broadband adoption

Abstract:
In the last year, many advocates have called for the imposition of Carterfone regulation on the wireless industry. The FCC partially heeded this call when it imposed open platform regulations on one substantial block of spectrum (the Upper C block) that was recently part of the record-setting 700 MHz auction. In the fourteen years that the FCC has performed spectrum auctions, never before has the FCC simultaneously auctioned similar spectrum licenses that are subject to two radically different regulatory regimes. In this Bulletin, we utilize the results of this unique auction to show that applying similar wireless Carterfone regulation to all commercial wireless spectrum could suppress wireless infrastructure investment by $50 billion over the next decade, sharply reduce the profitability of wireless network services by 32%, and harm consumers. Because there are significant fixed and sunk costs involved with building and operating a wireless network, the estimated change in profitability could limit consumer choice by creating more highly-concentrated market. Indeed, applying such regulation across the board is likely to cause particular harm to small or medium-sized wireless firms by enhancing the role of scale economies in determining industry structure.

network neutrality, auctions, spectrum policy, open platforms, wireless Carterfone

Abstract:
The American Recovery and Reinvestment Act of 2009 directs over $7 billion to expand broadband Internet availability and adoption in the United States. One target of such funding is the elderly population, a group of Americans for which broadband adoption is relatively low. An interesting question is what benefits do such efforts afford? We employ a dataset of over 7,000 elderly retired persons to evaluate the role of Internet use on mental well-being. Well-being is measured using the eight-point depression scale developed by the Center for Epidemiologic Studies (CES-D). Empirical techniques include single equation regression, instrumental variables and propensity score methods. All procedures indicate a positive contribution of Internet use to mental well-being of elderly Americans, and estimates indicate that Internet use leads to about a 20% reduction in depression classification. As depression is estimated to cost the United States about $100 billion annually, expanding Internet use among the elderly may have significant economic payoffs.

Elderly, Broadband, Depression, CES-D, Internet, Communications, Propensity Score, Matching, Instrumental Variables, Economic Development

Abstract:
Today, a patchwork of regulation applies to the rates, terms, and conditions cable and telephone companies pay for access to poles, ducts, and conduits. Concerned about the differences in pole attachment rates paid by communications carriers, the Federal Communications Commission ('FCC') is currently considering whether it should adopt a new, uniform rate for pole attachment services for 'broadband Internet access services.' In this Paper, we explore the optimal method of establishing rates for utility poles - Ramsey pricing - where the fixed costs of poles are allocated to firms based on the relative demand elasticities for attachments. We find that while historical differences in rates might have been compatible with Ramsey pricing when the service offerings of firms differed substantially, technological convergence dictates that these firms should pay a unified rate. Moreover, we present evidence indicating that optimal pricing principles would prescribe a significantly lower attachment rate for all broadband networks than the rates currently applied to these firms. Such a result would promote overall economic efficiency and increase consumer welfare.

Pole Attachments, Ramsey Pricing, broadband

Abstract:
The Generalized Lambda Distribution is a popular tool for generating random numbers following a wide range of non-normal, asymmetric distributions. In this short paper we assess the accuracy of the technique in replicating moments across a range of "sample sizes." We find that accuracy is highly dependent on sample size, particularly with respect to the third and fourth moments. Generally, acceptable accuracy is accomplished with no less than 2,500 observations, but this finding depends critically on the size of the fourth moment.

Generalized Lambda Distribution, Simulation, Monte Carlo

Abstract:
This article provides an empirical evaluation of a recent and important exercise in regulatory price setting in the United States. The 1996 Telecommunications Act required incumbent local phone companies to sell components of their network to rival firms at regulated prices, and the prices for these 'unbundled network elements' were based primarily on independent estimates of forward-looking economic costs. Our econometric analysis reveals that, while cost is a primary determinant of element prices, the prices also reflect foregone retail profits for incumbent firms. Statistical tests suggest that 'splitting the baby' is an accurate positivist description of public agency behavior.

Abstract:
This paper examines a recent study by the Berkman Center for Internet and Society. The Berkman Study was specifically requested by the Federal Communications Commission to “conduct an independent expert review of existing literature and studies about broadband deployment and usage throughout the world.” This paper demonstrates that the Berkman Study first improperly estimates its econometric model and then incorrectly interprets the results from it. The error in the interpretation is significant. While the [Berkman] Study’s authors verbally conclude that open access policies stimulate increased consumption of broadband, the econometric model they rely upon shows the opposite - open access reduces the consumption of broadband. Because the Berkman Center incorrectly interprets the findings of its own model to draw the wrong conclusions about the impact of so-called “open access” policies on broadband consumption, the Berkman Study is so flawed that it cannot be relied upon to formulate public policy.

Phoenix Center, Berkman Center, Broadband, Unbundling, Open Access, Network Neutrality, OECD, Broadband Rankings, Broadband Comparisons, Catching Up, de Ridder, Yochai Benkler, FCC, Internet

Abstract:
In this paper, we consider the argument that Carterfone-type rules are required in response to mobile operators' use of term contracts, early termination fees, and allegedly restrictive handset certification and support policies. First, we show that such practices by mobile operators are entirely consistent with competitive rivalry, so their use is not an indicator of market power as is frequently claimed. Second, we show that these practices drive down prices for equipment by increasing the degree of complementarity between the mobile device and mobile services. Consequently, applying wireless Carterfone regulations would result in higher equipment prices for consumers, with little if any compensating reduction in service prices. As such, wireless Carterfone regulations cause a wealth transfer from consumers to producers. From a pricing perspective, our welfare calculations imply that wireless Carterfone is bad for consumers and society and, therefore, such losses must be compared to any demonstrated gains from the proposed regulation.

Wireless, wireless Carterfone, early termination fees, complementarity

Abstract:
Testimony before the FCC summarizing Phoenix Center Research on Network Neutrality and providing a detailed critique of a pro-network neutrality analysis by Dr. Barbara Van Schewick.

Network Neutrality, Congestion Externality, Barbara Van Schewick

Abstract:
Testimony Before the House of Representatives Committee on Energy and Commerce Subcommittee Telecommunications and the Internet Hearing on 'An Examination of Competition in the Wireless Industry'

Wireless, Telecommunications, Competition, Broadband, Mobile

Abstract:
In their 2001 paper, Breuer, McNown, and Wallace argue that panel unit root tests are flawed in that the "all or nothing nature of these procedures may lead to serious misinterpretations of tests applied to mixed panels" (2001, p. 483). The authors propose an alternative test, the SURADF test, which allows for and estimates heterogeneous rates of convergence. We show that SURADF test results are highly sensitive to the selection of panel members. As such, application of the SURADF test seems to require a sound basis for panel member selection and a caveat that all results are panel-specific.

Abstract:
In this PERSPECTIVE, I evaluate three normalization variables for broadband connection data for the OECD -- population, households, and fixed telephone connections. Statistical testing indicates the best normalization variable is fixed telephone connections. Broadband connections are not proportional to population, eliminating population as a useful normalization criterion. The ranks of countries across the normalizing variables are evaluated.

Broadband, Rankings, OECD, Internet, Telecommunications

Abstract:
Countries around the world are increasingly concerned as to whether the adoption of broadband technology by their respective citizens is sufficient to support economic growth and social development. Unfortunately, such concerns are often expressed in terms of where a country ranks among its peers by means of raw adoption numbers. Such raw data are often misleading and incomplete. In this Paper, we propose a different and more policy-relevant approach to adoption measurement. We develop a value-based Broadband Adoption Index (“BAI”) that compares the actual value to society that results from the adoption of broadband technology to a target level of adoption value. This target level will vary from country to country and is a function of the social value of broadband connectivity, measured as the difference in the social benefits and the costs of broadband. The BAI is specifically designed to accommodate and include the value of different connection modalities like mobile broadband into a single index, something that merely summing the number of connections cannot do. We believe that policymakers can adopt aspects of the BAI approach immediately, with particular attention to collecting and using proper information for policy decisions.

Broadband, Broadband Adoption Index, OECD, Broadband Ranking, International Ranking, Per Capita, Social Value

Abstract:
In this Perspective, we estimate the auction revenue potential of the AWS-3 spectrum if licensed without significant regulatory emcumbrances. Using data from two recent spectrum auctions, regression analysis is used to predict auction revenues. We estimate the 25 Mhz block of spectrum would sell for about $2.8 billion.

Spectrum, Auctions, Wireless, FCC, Telecommunications, Communications, Policy

Abstract:
In Perspective 08-02, Dr. Ford responds to comments on his earlier Perspective 08-01. These responses include an alternative calculation for predicting auction revenues (raising the expected revenue of the AWS-3 auction to about $3 Billion) and responding to comments from M2Z Chairman John Muleta regarding evidence submitted by the company to the FCC.

Wireless, Spectrum, Communications, Telecommunications, Auctions, M2Z, AWS

Abstract:
In 1999, the Federal Communications Commission (“FCC”) began to grant incumbent local exchange carriers (“LECs”) pricing flexibility on special access services in some Metropolitan Statistical Areas (“MSAs”) when specific evidence of competitive alternatives is present. The propriety of that deregulatory move by the FCC has been criticized by the purchasers of such services ever since. Proponents of special access price regulation rely on three central arguments to support a retreat to strict price regulation: (1) the market(s) for special access and similar services is unduly concentrated; (2) rates of return on special access services, computed using FCC ARMIS data, are very high; and (3) prices for special access services are lower in more heavily regulated markets than in markets with the most pricing flexibility. As shown in this Policy Paper, these arguments, even if factually correct (which they are not), do not prove the presence of undue market power and, therefore, the need for additional price regulation. Moreover, those lines of inquiry do not consider the potential costs or risks of regulatory intervention, which must be part of any serious cost/benefit analysis. That said, given the importance of this issue, we provide several recommendations for policymakers that are evaluating the special access regulatory paradigm. First and foremost, data collection must be improved. Second, any revision to the special access price regulation paradigm must be subject to a stringent cost/benefit test, with explicit consideration of the costs of regulation. Finally, when gathering and analyzing more comprehensive data, policymakers should distinguish between economic definitions of “geographic market” and geographic areas for proper and efficient administration of its special access rules.

Special Access, ARMIS, Market Concentration, High Capacity Circuits

Abstract:
Phoenix Center Perspective 09-04 reviews a recent analysis of net neutrality advocates Free Press on the relationship between regulation and investment. This Perspective points to a number of severe defects with Free Press's methods.

Free Press, Network Neutrality, Neutrality, Broadband, Policy, Telecommunications, Phoenix Center, Internet, Derek Turner

Abstract:
Market definition is an essential ingredient to competitive and regulatory analysis. Yet, there is significant disparity regarding the definition of the relevant geographic market for high-capacity circuits, commonly referred to as Special Access services. Given the present debate over expanding price regulation in this sector, the importance of market definition on the expected economic effects of regulation is worth evaluating. In this paper, we demonstrate that if geographic markets are “location specific” and supplied by a monopolist as the proponents of regulation claim, then price regulation reduces economic welfare in all instances. That is, even with monopoly supply, regulation offers no improvement in economic welfare, meaning the debates over the extent of competition and profit margins in such markets are irrelevant. The effect of regulation is mostly to transfer profits from sellers to buyers, so the debate appears to be largely a quibble over rents. That said, every $1 of transfer costs more than $1 to society, so regulation reduces welfare. This analysis demonstrates that the present case for regulating high-capacity services is woefully inadequate and poorly conceived.

Special Access, bilateral monopoly, market definition, Federal Communications Commission

Abstract:
One goal of the American Recovery and Reinvestment Act of 2009 (“ARRA”) is to provide all Americans with access to affordable broadband services, particularly to those Americans living in rural markets where demand and cost conditions do not favor network deployment. At the same time, there is growing support for regulations that may effectively force network operators to “invest their way out” of congestion rather than manage traffic to improve network efficiency and quality. In this BULLETIN, we demonstrate that such rules are likely to affect disproportionately networks located in rural areas or smaller networks in urban markets given the cost disadvantages faced by such firms. Since these markets are a central target of both the ARRA’s stimulus funding and required National Broadband Plan, the imposition of strong “network management” provisions are likely to result in lower quality service and less availability in rural areas and potentially reduce competition in urban areas, as well as to reduce the effectiveness of stimulus grants and other subsidies. Further, we present some evidence indicating an elastic response of subsidy levels to increases in costs resulting from such regulations; specifically, a 1% increase in deployment costs arising from regulation increases the subsidy required for ubiquitous coverage by nearly 2%. Accordingly, policymakers seeking to expand quickly and efficiently broadband availability in rural markets should carefully and explicitly compare the benefits and costs from network management regulatory mandates, with a particular eye on disproportionate effects across market types.

Network Neutrality, Digital Divide, rural broadband, American Recovery and Reinvestment Act

Abstract:
In this Perspective, I evaluate a common specification of econometric models of broadband adoption. Specifically, I consider the use of broadband plus dial-up connections, either lagged or contemporaneous, as a measure of market maturity. The variable is a model mispecification in that it imposes an invalid coefficient constraint. Monte Carlo tests demonstrate the potential for significant bias. Tests of the constraint are performed and the hypothesis of equal coefficients is rejected.

Internet, Broadband, Telecommunications, Econometrics, Specification

Abstract:
In an effort to resolve the "all or nothing" nature of panel unit root tests, Professors Boucher-Breuer, McNown and Wallace propose the SURADF test that can determine the mix of stationary and non-stationary series in a panel. We reveal a practical shortcoming of the test. Specifically, the results of the test appear to be highly sensitive to the selection of panel members. Since member selection is often driven by somewhat arbitrary rules such as missing data or membership in an organization, this sensitivity of the test is perhaps a significant shortcoming greatly limiting both its applicability and its generality.

Unit Root Tests, SURADF, Dickey Fuller, Panel Data

Abstract:
In this paper, we offer a hybrid approach to merger simulation in which we allow rather extensive pre-testing to suggest the "correct", or most desirable, form for the underlying demand curves. Our application is the merger between the large mobile telephone companies Cingular and AT&T Wireless merger in 2004. While a somewhat novel approach, our findings are not radical in any way, so the econometric determination of demand forms does not appear to produce novel conclusion per se. That said, allowing the data to inform the researcher about the appropriate form of demand seems a worthwhile effort for merger simulations, data permitting.

Merger Simulation, Demand Models, Telecommunications

Abstract:
In this paper, we explore whether broadband investment by municipalities has an effect on economic growth. To do so, we employ an econometric model to compare economic growth in Lake County, Florida, with other similar Florida counties. In 2001, Lake County - a small county in central Florida - began generally offering private businesses and municipal institutions access to one of Florida's most extensive, municipally-owned broadband networks, with fiber optic connections to hospitals, doctor offices, private businesses, and 44 schools. Our econometric model shows that Lake County has experienced approximately 100% greater growth in economic activity - a doubling - relative to comparable Florida counties since making its municipal broadband network generally available to businesses and municipal institutions in the county. Our findings are consistent with other analyses that postulate that broadband infrastructure can be a significant contributor to economic growth. Our results suggest that efforts to restrict municipal broadband investment could deny communities an important tool in promoting economic development.

Municipal Broadband, Economic Development, Telecommunications

Abstract:
The Telecommunications Act of 1996 contains provisions that allow increasing levels of concentration in local radio markets. Debate has focused on whether allowing greater concentration of broadcast media resources into fewer hands is a sound public policy. One fear of regulators is the effect of increased concentration on the market power of radio stations. Concentrating on intraindustry variations, this paper systematically assesses the link between radio station profitability and market concentration. The underlying assumption of the empirical analysis is that sale price (or present value) of the radio station includes the present value of future profits. The results do not support a strong relationship between increases in concentration and the profitability of radio stations, although we find group ownership to increase efficiency.