Has Deregulation Affected Investment in Special Access?

Abstract

Little empirical work carefully evaluates the special access market, and even less research has focused explicitly on the effects of deregulation (pricing flexibility). This paper attempts to address that gap in the literature by exploring empirically the relationship between the different types of special access deregulation and investment in special access facilities, specifically the number of special access lines provided by the Incumbent Local Exchange Carriers (ILECs).

Special access has long been regulated, but in 1999 the Federal Communications Commission (FCC) established a framework for lifting rate regulation in two phases as competition across a metropolitan statistical area reached specified trigger levels. Following the 1999 FCC order, rate regulation was slowly lifted, but some in Congress have called for re-regulating those rates and the FCC is investigating the issue.

Under empirical analysis, we find deregulation, in areas where the ILEC has thus been granted price flexibility, to be statistically and significantly associated with increases in the number of special access lines at the state level, even controlling for population, the size of the state's economy, per capita income, and state and year fixed effects. The general unavailability of data on actual prices from either the ILEC or competitors and the lack of any information on special access lines from competitors, however, make it impossible to reach definitive conclusions on the overall effects of special access deregulation.

Keywords: deregulation, investment, special access, ILEC, incumbent local exchange, access lines, rate regulation, telecommunications, FCC, GAO, AT&T, Verizon, merger, SBC, MCI, MSA, MSAs, channel termination, access circuits, DS-1, DS-3, Wilkie, Spiwak, Rappoport, dedicated transport, high-speed

JEL Classification: L9, L96, L98, L5, L50, L51, L52, L43, L1, L11, L12